Given the following data for a typical firm in a competitive industry, sketch the two short-run average total cost curves and the two marginal cost curves, and answer the following: 
(A) What is the long-run price and quantity produced for the typical firm in this industry? How many units of capital will the firm be using?
(B) Suppose the current market price of the output is $6. What level of capital and output is profit-maximizing? Explain.
(C) Suppose the price of the output increases to $10. What level of capital and output is profit-maximizing now?
(D) Will it make sense for the firm to expand even when the long-run equilibrium may be at a lower level of capital? On what does it depend?
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(A) The firm produces 5 units of output...View Answer
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