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ECON

1. 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.

1. Compute the average cost for 50 shirts, 100 shirts, 130 shirts, and 200 shirts. (1.5 Marks)
2. Draw the long-run average cost curve for 50,100,130 and 200 shirts per day. (1.5 Marks)

2. Explain the relationship between short run ATC and MC and why ATC is U-shaped in short run? (2 Marks)
3. Explain equilibrium of the firm under perfectly competitive market by choosing output level at which

1. P=MC=MR and Firm is making zero economic profit (1 Mark)
2. P=MC=MR and Firm is making a loss (1 Mark)
3. Explain shut down rule with the help of graph (1 Mark)

4. Define the price elasticity of demand and explain its role to predict changes in quantity and total revenue (2 Marks).