- Consider the long-run production of shirts. The cost of the indivisible inputs used in the production of shirts is $400 per day. To produce one shirt per day, the firm must also spend a total of $55 on other inputs-labour, materials, and other capital. For each additional shirts, the firm incurs the same additional cost of $55.
- Compute the average cost for 50 shirts, 100 shirts, 130 shirts, and 200 shirts. (5 Marks)
- Draw the long-run average cost curve for 50,100,130 and 200 shirts per day. (5 Marks)
- Explain the relationship between short run ATC and MC and why ATC is U-shaped in short run? (2 Marks)
- Explain equilibrium of the firm under perfectly competitive market by choosing output level at which
- P=MC=MR and Firm is making zero economic profit (1 Mark)
- P=MC=MR and Firm is making a loss (1 Mark)
- Explain shut down rule with the help of graph (1 Mark)
- Define the price elasticity of demand and explain its role to predict changes in quantity and total revenue (2 Marks).
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