The following are the cost information of a typical ice tea company in an industry with 100 firms. Output (ice teaper hour) Marginal Cost (Sperice tea) Average Variable Cost (Sperice 4.00 Average Total Cost (Sperice 7.33 3 2.50 4 2.20 3.53 6.03 5 1.90 3.24 5.24 6 2.00 3.00 4.67 7 2.91 2.91 4.34 8 4.25 3.00 4.25 9 8.00 3.33 4.44 a) At the price of $2.20 per ice tea, what is the firm's profit maximizing level of output? Why is this the profit maximizing level of output for the firm? b) If the market price is $8 perice tea and the firm is producing six (6) ice teaper hour, is the firm maximizing profit or not? Why or why not? If the firm is not maximizing profit, what should it do to maximize profit? c) At the price of $8 per ice tea, what is the firm's profit-maximizing level of output? Why is this the profit maximizing level of output? What is the firm's economic profit at this output and price (show formula and solution)? d) Is the price $8 a short-run or long-run equilibrium price for the industry? If the price is not a longrun equilibrium price, what adjustments are likely to happen in the market for it to reach longrun equilibrium. e) What price must prevail in the market for atypical firm to operate in the short run? At this price, how many ice tea will be supplied by all firms in the market?
