Unformatted text preview: shape it does? Question 2 (15 points): Consider a perfectly competitive market for bongo drums. For a representative firm, minimum ATC is $37 at a quantity of 1832, and AVC is $22 at a quantity of 1321. a. (3 points) Suppose that the market price is $5. In a cost curve graph, draw the profits for this market. Are these profits positive or negative? b. (3 points) Now, suppose that the market price is $26. In a new graph, show the new profits. Are these profits positive or negative? c. (3 points) Draw a new graph when the market price is $43. In a new graph, show the new profits. Are the new profits positive or negative? d. (2 point) For which of the above prices ($5, $26, $43) should the firm shutdown? e. (2 point) For which of the above prices should the firm exit? f. (2 points) Suppose that all firms in the industry have the same costs. What is the long run price in the market? What are profits in the long run?...
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- Spring '08
- Economics, market price, new graph, new profits, Prof. Meg Ledyard