The sneakers market is perfectly competitive in Country X. Table 1 shows the demand and supply schedule of the sneakers market in Country X.

Price($)	Quantity Demanded (Pairs of sneakers)	Quantity Supplied (Pairs of sneakers)
160	300000	120000
200	260000	160000
240	200000	200000
320	150000	300000
360	110000	380000
400	50000	450000

Table 1 – Demand and supply schedule of the sneakers market in Country X

AO Shoes is one of the firms in the sneakers market in Country X. Apart from the rent of $10,000, AO Shoes has the cost structure as shown in Table 2.

Quantity (Pairs of sneakers)	Total Variable Cost ($)
0	0
50	6850
100	12800
150	19000
200	31000
250	49000

Table 2 – Total variable cost of AO Shoes

(a)
Construct ONE new table for AO Shoes based on the above data. Besides including the original column of quantity, add columns of total cost, average total cost, and marginal cost of AO Shoes. Round your answers to integer, if applicable. No working is required.

(b)
Determine the price, profit maximizing output and economic profit (loss) of AO Shoes. Explain briefly.

(c)
Based on the given data and your answer of part (a) and (b), draw a set of market-firm diagram to illustrate the situation of market for sneakers and AO Shoes. Label the critical points with figures. Label the area of profit (loss) too. No average variable cost curve and no explanation is required.

(d)
Recently the general income of citizens dropped by 10% compared to last year. At the same time, the landlord of AO Shoes raised the rent dramatically. Consequently, AO Shoes has recorded a zero economic profit.
(i) Illustrate these changes in the same diagram of part (c).

(ii) Use demand-and-supply analysis to explain the effects on the equilibrium price and equilibrium quantity of the sneakers market. How AO Shoes is affected by the change of equilibrium price? Explain.
 

Transcribed Image Text:

Quantity (Pairs) Total Cost ($) Average Total Cost ($) Marginal Cost ($) Quantity (Pairs) Total Cost ($) Average Total Cost ($) Marginal Cost ($)

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