Perfect Competition

(a) Per-unit profit = P - ATC = 8 - 6 = \2$. Total profit =$$2 \times 50 = \boxed{$100}$.

(b) Yes. Profit is maximized where $MR = MC$, and for a price-taker $MR = P$. Here P = MC = \8$, so the firm IS at the profit-maximizing output.

Apply the shut-down rule: produce iff $P \ge AVC$. Here P = \10 < AVC = $12$ ⇒ shut down in the short run.

Reason: at this price, revenue does not even cover variable costs, so producing actually adds to losses. Shutting down limits losses to fixed costs only.

Chain of events:

1. Positive economic profit signals attractive returns ⇒ new firms ENTER.
2. Entry shifts the market supply curve to the RIGHT.
3. Rightward supply shift LOWERS the market equilibrium price $P^*$.
4. Each existing firm now faces a lower horizontal demand curve, so it cuts $Q$ (reading off its MC curve) and earns less profit per unit.
5. Entry continues as long as $P > ATC$. It stops when $P = \min ATC$.

Long-run outcome for the typical firm:

• $P = \min ATC$.
• $\pi^{\text{economic}} = 0$ (firms still earn a normal profit — covering opportunity costs).
• The firm produces at the bottom of its ATC curve (productive efficiency) and at $P = MC$ (allocative efficiency).

(a) For a price-taker, max profit at $P = MC$: $5 = 0.10Q \Rightarrow \boxed{Q^* = 50}$ bushels.

(b) Per-unit profit = P - ATC = 5 - 4 = \1$. Total profit =$$1 \times 50 = \boxed{$50}$.

(a) Short run in B: ATC and MC shift down by 30%. The market price has not yet changed (other firms haven't reacted). Each firm now produces at the new $P = MC$, slightly more output, and earns positive economic profit because $P > \text{new } ATC$.

(b) Long-run adjustment in B: Positive profit ⇒ entry. Some new firms enter, some existing firms expand. Market supply shifts RIGHT. Market price falls until $P = \min(\text{new }ATC)$. Each surviving firm earns zero economic profit again, but at a lower price and producing at the bottom of the new (lower) ATC curve.

(c) Comparison: Long-run $P$ in industry B is lower than in industry A by the cost-savings amount. Both industries have zero economic profit; the difference is that B's consumers permanently enjoy a lower price as the cost reduction is competed away. This illustrates why perfect competition + free entry pass cost savings on to consumers.