Economics

Follow these instructions for completing and submitting your assignment:

Place all answers, both numerical and written, in a single excel spreadsheet.

Place each problem into a separate tab or sheet in an Excel file.

Place labels on spreadsheet inputs and outputs, and use the yellow highlighter on the top menu bar to highlight your final answer.

If the question incorporates graphs, you must replicate the graph on your spreadsheet file.

Do not submit Word files or multiple files for a single assignment.

Technical Question

5. Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.

a. How do you know that the industry is in long run, equilibrium?

b. Suppose that there is an increase in demand for this product. Show and explain the short-run

adjustment process for both the firm and the industry.

c. Show and explain the long-run adjustment process for both the firm and the industry. What

will happen to the number of firms in the new long-run equilibrium?

Application Question

5. In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output, its average total cost is $28, its marginal cost is $20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false:

a. The firm is currently producing at the minimum average variable cost.

b. The firm should produce more output to maximize its profit.

c. Average total cost will be less than $28 at the level of output that maximizes the firm’s

profit.

Hint: You should assume normal U-shaped cost curves for this problem