1. The following problem applies to a perfectly competitive producer of widgets. A typical producer, say Widget Enterprises Inc., can sell widgets at a constant price of $30/pound. Widget Enterprises has the following costs in the short-run. Its total fixed costs are $45.

QuantityTotal Cost

(pounds)$

045

165

280

390

4105

5125

6150

7180

8215

9255

a.What does it mean to say that Widget Enterprises is a price taker? What does it say about the widgets it makes and the widgets of other firms?

b.Complete the following schedule:

QTCTFCTVCMCTRMR

(pounds)$$$$$$

045

165

280

390

4105

5125

6150

7180

8215

9255

c.Profit is maximized where MR = MC. What is the profit maximizing quantity of widgets?

d.For the answer you gave in part c, compute the profit earned by the firm.

e.Complete the following schedule:

QAFCAVCATC

(pounds)($/lb)($/lb)($/lb)

0------------

1

2

3

4

5

6

7

8

9

f.On a single graph, plot MR, MC, AVC, and ATC.

g.What would the profit maximizing quantity of output be if the price of widgets were $35/lb? What if the price were $40/lb?

h.What does the short-run supply curve for the firm look like?