Suppose that the monthly market demand schedule is

Frisbees is price $8, $7, $6, $5, $4, $3, $2, $1.

Quantity demanded $1 ,000, $2 ,000, $4 ,000, $8 ,000, $16 ,000, $32 ,000, $64 ,000, $150 ,000. Suppose further that the marginal and average cost of Frisbee production for every competitive firm are rates of output $100, $200, $300, $400, $500, $600. Marginal cost $2, $3, $4, $5, $6, $7. Average total cost $2, $2 .50, $3, $3 .50, $4, $4 .50. Finally, assume that the equilibrium market price is $6 per Frisbee.

A. Draw the cost curves of the typical firm.

B. Draw the market demand curve and identify market equilibrium.

C. How many Frisbees are being sold at equilibrium?

D. How many identical firms are initially producing Frisbees?

E. How much profit is the typical firm making?

F. In view of the profits being made, more firms will want to get into Frisbee production.

In the long run, those new firms will shift the market supply curve to the right and push the prices down to minimum average total cost, thereby eliminating profits.

At what equilibrium price are profits eliminated? How many firms will

be producing Frisbees at this price?