Exercise 1 (Perfect/Pure Competition) This exercise provides practice in graphs in a perfectly competitive market situation. Figure 6.3 Price or Cost (per item) 2 3 5 Quantity (Hems per hour) In thousands Please note the formula below. You will need them to solve the questions. Total Revenue (TR) = Price x Quantity Total Cost (TC) = ATC x Quantity Economic Profits = TR - TC or Economic Profit per unit x Quantity Economic Profit per unit = Price - ATC Answer the following questions based on the above graph. (Figure 6.3) 1. Label the three curves (ATC, MC, MR) on the graph given in Figure 6.3, for a firm in a perfectly competitive market situation. 2. What is the profit-maximizing rate of output (production quantity level) for this firm? Hint: The firm produces at the quantity where MR = MC in order to maximize profits. 3. Knowing the quantity level produced, calculate the total revenues (TR) received by the firm. Show your calculations. Remember in Perfect competition Price = MR = Demand 4. Given this quantity level, calculate the total cost (TC) borne by the firm. Show your calculations. Hint: TC = ATC x