Consider the two firms producing widgets in Paradise. The following table shows the marginal costs of these two firms.

If we want to produce a total of 12 units of output, the efficient allocation of production should be                   units to firm 1 and                   units to firm 2.

II. it will earn no profits in the long run.

III. it is earning positive profits.

There are 100 firms in a

perfectly competitive decreasing cost industry at the long-run equilibrium. A

typical firm faces the following cost curves (q is firm quantity, n is number

of firms):

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The government invested $10 million in an infrastructure project two years ago. The amount of money was spent on wages and material costs, which cannot be recovered. This year, the government realizes that she needs to invest another $4 million in the project because of construction delays, while the $11 million expected revenue remains unchanged and can only be generated upon the completion of the project. The government should __________the additional budget because __________.

Mary and Peter both provide counselling service. While Mary needs to pay $55000 per month to rent an office, Peter uses an office he inherited from his late uncle. (Assume Peter’s office is identical to Mary’s office.) Other things being equal, Peter will earn ______than Mary.

Determine whether the following statements about a perfectly competitive market are TRUE OR FALSE.

Statement 1: Average cost and marginal cost curves must meet at the minimum of the average cost curve.

Statement 2: When the marginal cost is increasing, the average cost must be increasing.

Statement 3: In short run, the difference between the average total cost and the average variable cost must diminish when output level increases.

A competitive firm’s short-run supply curve is the section of __________ curve that is __________.

The following shows the average cost schedule of a competitive firm.

The following shows the marginal cost schedule of a competitive firm. Suppose the firm has a fixed cost of $2 and the prevailing market price is $4.