Suppose the firm is in a perfectly competitive market. (a) Derive the firm’s average variable cost curve, average total cost curve, and marginal…

1. Suppose the firm is in a perfectly competitive market.

(a) Derive the firm’s average variable cost curve, average total cost curve, and marginal cost

curve. Plot these functions on a graph and highlight the firm’s short-run supply curve.

(You can use a graphing calculator or Google to plot the AVC and MC curves, then copy

them down and highlight the supply curve.)

(b) Suppose the market is at the long-run equilibrium price. What quantity does the firm

produce? What is the long-run equilibrium price in this market?

(c) Now suppose that there is a sudden increase in demand that raises the market price to


= 10

. How much does the firm produce at this price? what are the firm’s profits?

(d) Use a diagram to explain what will happen to the long run equilibrium price and profits

if the demand curve remains at this new level.

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