1)A typical profit-maximizing firm in a perfectly competitive constant-cost industry is earning a positive economic profit.
Is the market price greater than, less than, or equal to the firm’s price? Explain.
Draw correctly labeled side-by-side graphs for both the market and a typical firm and show each of the following.
Market price and quantity, labeled Pm and Qm
The firm’s quantity, labeled Qf
The firm’s average revenue curve, labeled AR
The firm’s average total cost curve, labeled ATC
The area representing total cost, shaded completely
If one firm in the market were to raise its price, what will happen to its total revenue? Explain.
Now suppose the market is in long-run equilibrium. The government gives a lump-sum subsidy to each firm producing in the industry. Indicate whether each of the following will increase, decrease, or remain the same.
The firm’s quantity in the short run. Explain.
The market price and quantity in the long run. Explain.