EXAM #3If there is a question that is unclear to you, simply ask. Show ell work for partial credit ODDortunities. Use the space provided to answer the following questions. There is additional space on the back.1. Assume that a short-run total cost function is classically” shaped with regions of decreasing and increasing marginal cost. Are the following statements correct or incorrect? Use both diagrams and intuition to explain your responses. (6 point each)If output is rising, average fixed cost is falling.a. If (he marginal cost curve is greater than average total cost, (he average variable cost is also increasing.b. If the total fixed cost curve shifts upward, the gap between the average total cost curve and average variable cost curve gets more narrow.2. Consider the total cost functionTC = 40Q - 3OQ2 + 2Q3a. Is this a long run or short iun total cost function? Explain. (4 points)Derive the expressions for marginal and average total cost. (4 points)b. At what level of output is minimum efficient scale? (5 points)3. The market for corn is perfectly competitive. The demand curve is: Qd = 21 - P. The supply curve is Qs = P- 1.a. Illustrate the corn market and solve for the equilibrium price and quantity. (6 points)At the competitive equilibrium, calculate the consumer and producer surplus. Label the consumer and producer surplus in your diagram. (4 points)b. The government imposes a price control at $ 14. In a new diagram below, show how (his price control will impact the com market. Recalculate consumer and producer surplus and dead weight loss and label in lhe diagram below. (9 points)From societys perspective, why is dead weight loss worth measuring? (6 points)4. A monopolists market demand is given by Q = 1 (XX) - 20P.a. Would this profit-maximizing monopolist ever choose to produce 600 units of output? Explain. (5 points)You now discover that marginal cost for (his monopolist is constant and equal to $8. What is the monopolists profit-maximizing quantity, price and profit earned? (7 points)5. A perfectly competitive firm is maximizing profit at the current market price and at this point its short- run average cost curve is upward sloping.a. What does this imply about the firms economic profits? Explain. (6 points) b. Describe the long run adjustment to the situation described in part (a). Be sure to separate adjustments for the market from adjustments for the typical firm. (6 points)A perfectly competitive firm has a cost function: TC(Q) = .5Q2 + 40Q + 50 a. Derive expressions for ATC, AVC. and MC. (6 points) b. Explain the shut down decision. If all fixed costs were sunk, below what price would the firm shut down? (7 points)b. If the market price was S60, what would the profit maximizing quantity be and how much profit would be earned? (3 points)At what price will firms in the industry have no incentive to exit and there will be no incentive for outside firms to enter this industry? (4 points)