What is the effect of an increase in marginal cost

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1. In side-by-side diagrams illustrate two perfectly competitive firms in long-run equilibrium where the firms have identical AC but the firm on the right has higher fixed costs. Using these diagrams illustrate and explain which firm: left (low fixed costs) or right (high fixed costs) is more likely to survive if the long-run equilibrium is interrupted by a severe recession.

2. The wood pallet industry is perfectly competitive. In addition, suppose that that each firm has an identical total cost function TC = 400 + 5q + q2 , corresponding to MC = 5 + 2q. The market demand curve for this industry is Q = 262.5 - .5P. In the long-run, what is the equilibrium price and how many firms are operating in this industry? Fully explain the economics of how your answer is derived. Do not use calculus. Note: the diagram of a perfectly competitive firm in the long run may prove helpful.

3. Consider a monopoly with an upward sloping marginal cost curve. What is the effect of an increase in marginal cost on the monopolist's price? What is the effect on the monopolist's revenue?

Reference no: EM132667662

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