1. A firm sells in a competitive market in which price is $10. Its marginal cost is 2 + .5Q. Determine the profit-maximizing level of output.
2. A perfectly competitive firm's lowest average total cost is $48 and the corresponding average variable cost at that output is $24. Marginal cost and average variable cost are equal at $10. Assuming that the firm is presently producing a quantity at which average total cost is at its minimum, what does it pay the firm to do if:
a. The market price is $49?
b. The price is $30?
c. The price is $8?
3. Explain why P = MC in the short-run, profit-maximizing equilibrium of the perfectly competitive firm, whereas in long-run equilibrium P = MC = AC.