Evil Corp produces tiny homes. The market for a tiny home is monopolistic competition. The firm sells two homes each day for $100,000 each. The firm faces anaveragevariable cost of $80,000 and theaveragefixed cost of $40,000. Answer the next five questions based on this information.

1. What is the firm's variable cost (notthe average variable cost) for producing two homes?
2. What is the firm's fixed cost for producing two homes?
3. How much profit does the firm earn for selling two tiny homes in the short run?
4. In the long run, do existing firms exit or new firms enter the market for tiny homes?
5. The average total cost for the same good is higher in monopolistic competition compared to perfect competition. Explain why the average total cost is higher in monopolistic competition.