Perfect Competition Problem

1‘ Suppose that the monthly market demand schedule for Frisbees is
Price $8 $7 $6 $5 $4 $3 $2 $1
ggggriltged 1.000 2,000 4,000 8.000 16,000 32,000 64,000 150,000
Suppose further that the marginal and average costs of Frisbee production for every
competitive firm are
Rate of output 100 200 300 400 500 600
Marginal cost $2.00 $3.00 $4.00 $5.00 $6.00 $7.00
Average cost 2.00 2.50 3.00 3.50 4.00 4.50
Finally, assume that the equilibrium market price is $6 per Frisbee.
3. Draw the cost curves of the typical firm and identify its profit maximizing rate of
output.
b. Draw the market demand curve and identify market eou1l1bnum.
c. How many (identical) firms are initially producing F rtsbees?
d. How much profit is the typical firm making?
e In view of the profits being made, more firms W1ll want to get 1nto Fr1sbee
produc ti on. In the long run, these new firms will shift the total cost, thereby
dissipating profits. At what equilibrium price are all profits elimmated. How
many firms will be producing Frisbees at thts pnce?