Question: You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per

You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250.

a) Draw a diagram illustrating the cost curves for the above bicycle firm.

b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce?

c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce?

d) At what prices would you advise the firm to stop making bikes altogether?

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