ECON 201 Problem Set 2 – Principles of Microeconomics

1 A perfectly competitive firm has fixed costs of $30 and total costs as indicated in the table below.OutputTotalFixedCostTotalvariableCostTotal Cost0123456789AverageVariableCostAverageTotalCostMarginalCost30394754606775849510810AverageFixed Cost123a. Fill in the missing values in the table.b. Graph total fixed cost, total variable cost, and total cost. (Be sure tounderstand what is behind the shape of each of the curves.)c. Graph AFC, AVC, ATC, and MC. Mark the two key points as discussed in class. Explainin your own words why the MC curve intersects both the AVC and ATC curves at theirminimums.d. What will happen to the AVC, ATC, and MC if the fixed cost increases by 40.e. How much will the firm produce if the market price that it faces is $13.5. Will the firmmake profits or losses? How much?f. Answer the questions in part (e) is the price was $8.5.g. Answer the questions in part (e) is the price was $6.h. The following table represents the market demand schedule for the industry.PriceSupply bythe FirmProfit/LossIndustrySupply3468.51113.515MarketDemand100080070060030020050h.1.Fill in the individual supply schedule for the firmh.2.Calculate the Profit or Loss for the firm and fill column 3 of the tableh.3.Fill in column 4 of the table if there are 100 identical firms in the industry.h.4. Use column 5 from the table to determine what will be the equilibrium price forthe industry. What will be the quantity supplied by each firm in the short run?