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Assignment Questions

Maximum Marks-05

1)

Consider the long-run production of Bicycles. The cost of the indivisible inputs used in the production of bicycles is \$6000per day. To produce one Bicycle per day, the firm must also spend a total of \$80 on other inputs-labor, materials, and other capital. For each additional bicycle, the firm incurs the same additional cost of \$80.

a)

Compute the average cost for 30 bicycles, 60 bicycles, 100 bicycles, and 300 bicycles.

(

1

marks)

b)

Draw the long-run average cost curve for 30,60,100 and300 bicycles per day.

(

1

marks)

2)

Draw a graph of perfectly competitive market and explain equilibrium of the firm by choosing output level at which

a.

P=MC=MR and Firm is making zero economic profit

(1 Mark)

b.

P=MC=MR and Firm is making a loss

(1 Mark)

c.

Explain shut down rule with the help of graph

(1 Mark)

The documents are below

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Q2
a) In this case price and MR both are equal to the marginal cost at C. This
point indicates that ATC is BC and price is BC at the profit maximizing
quantity Q. Since ATC = P and we have zero economic loss or profit
MC
Dollars
per unit
ATC
B
10
P=MR=A
P=E
A
D
2
Output
b) In this case price and MR both are equal to the marginal cost at D. This
point indicates that ATC is BC and price is AD at the profit maximizing
quantity Q. Since B > A, ATC > P and we have an economic loss
MC
Dollars
per unit
ATC
B
AVC
Economic loss
A
D
P=MR=AR
E
Output
c) In figure b) E point indicates the minimum value of AVC. This is called
the shut down point because in case price falls below this level, firm will not
produce anything and it will shut down in the short run.
one example of
Solution
Q1
Units (0)
Total Fixed Cost/day
Marginal Cost (MC) Variable Cost=Q*MC
Total Cost(TC)
Average Cost (AC)
30
80
280
60
80
6,000
6,000
6,000
6,000
2400
4800
8000
24000
8400
10800
14000
30000
80
100
300
180
140
100
80
Long Run Average Cost Curve
300
Line1
200
Average Cost
a
100
0
50
100
150
200
250
300
Output
One example
of solution
7.00
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pictures containing text will be accepted and will be considered plagiarism).
ECON101-Assignment 2.docx
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Assignment Questions
Maximum
Marks-05
1) Consider the long-run production of Bicycles. The cost of the
indivisible inputs used in the production of bicycles is \$6000
per day. To produce one Bicycle per day, the firm must also
spend a total of \$80 on other inputs-labor, materials, and other
capital. For each additional bicycle, the firm incurs the same
a) Compute the average cost for 30 bicycles, 60 bicycles, 100
bicycles, and 300 bicycles. (1 marks)
b) Draw the long-run average cost curve for 30,60,100 and
300 bicycles per day. (1 marks)
2) Draw a graph of perfectly competitive market and explain
equilibrium of the firm by choosing output level at which
a. P=MC=MR and Firm is making zero economic profit (1
Mark)
b. P=MC=MR and Firm is making a loss (1 Mark)
c. Explain shut down rule with the help of graph (1 Mark)