1. At a price of $5 the profit-maximizing output for a perfectly competitive firm is 1,000 units per year. If the average total cost is $3 per unit, what will be the firm’s profit? If the average total cost is $6 per unit, what will be the firm’s profit? What is the relationship between profit, price, and average total cost?
2. Use the following diagram to answer a, b, and c.
a. Illustrate the relationship between a perfectly competitive firm’s demand curve and the market supply and demand curve.
b. Illustrate the effects of an increase in market demand on a perfectly competitive firm’s demand curve.
c. Illustrate the effects of a decrease in market demand on a perfectly competitive firm’s demand curve.