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 additional cost of $80.

  1. Compute the average cost for 30 bicycles, 60 bicycles, 100 bicycles, and 300 bicycles. (1 marks)
  2. Draw the long-run average cost curve for 30,60,100 and 300 bicycles per day. (1 marks)

 

  • Draw a graph of perfectly competitive market and explain equilibrium of the firm 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)


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