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Instructions: Round your response to one decimal place. Quantity: o c. Calculate your firm’s maximum profits. Instructions: Round your response to the nearest penny (two decimal places). s o d. What long-run adjustments should you expect? Explain. Entry will occur until profits are zero. Exit will occur until profits rise sufficiently high. @ Neither entry nor exit will occur. Explanation a. The inverse linear demand function is P=17 - 0.5Q. b. MR=17 - 1Q and MC= 2+ 2Q. Setting MR = MCyields 17 - 1Q= 2 + 2Q. Solving for Qyields Q=5 units. The optimal price is P=17 — 0.5(5) = $14.50. c. Revenues are R=($14.50)(5) = $72.50. Costs are C=4+ 2(5) + (5)2 =$39.00. Thus the firm earns $33.50. d. In the long run entry will occur and the demand for this firm’s product will decrease until it earns zero economic profits.