1. Explain how the total product curve related to the total cost curve.

2. Why is price equal to marginal revenue for a perfectly competitive firm?

3. Explain why firm's will maximize profits where marginal revenue equals marginal cost.

1. In the long-run why do perfectly competitive firms earn zero economic profit?

2. Use the total revenue and the total cost curve to graph a perfectly competitive firm in long-run equilibrium. (Hint the firm can not earn a profit or a loss.)

3. A major input to the production of paper is wood. As the paper industry produces more paper the cost of wood increases since trees take a significant time to grow and the trees easiest to harvest will be harvested first. Graphically demonstrate the effect of a increase in the demand for paper will have on the long-run output and price both for the industry and a typical firm. (Hint you should draw two graphs one for the industry and one for a typical firm.)

1) Monopolists restrict output to maximize profit. With respect both the marginal costs at this profit maximizing level of output, and the marginal utility consumers receive from consuming this amount, why is this level of output inefficient?

2) What type of market structure do automobile dealers (not automobile manufacturers) operate with in? Why?

3) Advertising is usually profitable since it increases the demand for your product. However, advertising is often very expensive. When one firm advertises heavily the other firm can sometimes benefit by not advertising by saving this huge expense. Below are the payoffs to each firm for combinations of advertising: