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5. Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.

a. How do you know that the industry is in longrun

equilibrium?

b. Suppose that there is an increase in demand for

this product. Show and explain the short-run

adjustment process for both the firm and the

industry.

c. Show and explain the long-run adjustment process

for both the firm and the industry. What

will happen to the number of firms in the new

long-run equilibrium?

3. Suppose the demand curve for a monopolist is

QD = 500 − P, and the marginal revenue function

is MR = 500 − 2Q. The monopolist has a constant

marginal and average total cost of $50 per unit.

a. Find the monopolist’s profit-maximizing output

and price.

b. Calculate the monopolist’s profit.

c. What is the Lerner Index for this industry?