Microeconomics-production of Bicycles
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 additional cost of $80.
a) Compute the average cost for 30 bicycles, 60 bicycles, 100 bicycles, and 300 bicycles.
b) Draw the long-run average cost curve for 30,60,100 and 300 bicycles per day.
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
b. P=MC=MR and Firm is making a loss
c. Explain shut down rule with the help of graph
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