Frances sells pencils in the perfectly competitive pencil market. Her output per day and her costs are as follows:

Output per Day Total Cost

0............................................................$1.00

1..............................................................2.50

2..............................................................3.50

3..............................................................4.20

4..............................................................4.50

5..............................................................5.20

6..............................................................6.80

7..............................................................8.70

8............................................................10.70

9............................................................13.00

a. If the current equilibrium price in the pencil market is $1.80, how many pencils will Frances produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should be clearly labeled and should include Frances's demand, ATC, AVC, MC, and MR curves; the price she is charging; the quantity she is producing; and the area representing her profit (or loss).

b. Suppose the equilibrium price of pencils falls to $1.00 per pair. Now how many pencils will Frances produce, what price will she charge, and how much profit (or loss) will she make? Show your work. Draw a graph to illustrate this situation, using the instructions in part (a).

c. Suppose the equilibrium price of pencils falls to $0.25. Now how many pencils will Frances produce, what price will she charge, and how much profit (or loss) will she make?