1. Suppose that ACME Inc. is a perfectly competitive, profit-maximizing firm.
2. Suppose ACME determines the following information about its cost curves:

• Marginal Cost, MC, is at a minimum and equal to $1 at 20 units, i.e., MC(20) = $1;
• Average Variable Cost, AVC, is at a minimum and equal to $3 at 40 units, i.e., AVC(40) = $3; and,
• Average Total Cost, ATC, is at a minimum and equal to $6 at 50 units; i.e., ATC(50) = $6.

In the graph below, illustrate a set of "well-behaved" U-shaped cost curves that are consistent with the above cost data. Draw your cost curves carefully!

• Suppose that the market price is $10 and ACME produces Q0 = 45 units of output. Is ACME maximizing its short run (SR) profit at Q0 = 45? Illustrate and explain. If ACME is NOT maximizing its profits at Q0 = 45 units, then illustrate and explain its SR profit maximizing output level, Q*.
• At Q* clearly illustrate and label ACME's: SR profits, P(Q*); total revenue, TR(Q*); total cost, TC(Q*); total variable cost, TVC(Q*); and, total fixed cost, TFC

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