ECON 101 Saudi Electronic University The Long Run Production of Bicycles Paper

– please use your own words don’t copy and paste (no plagiarism)

– Please use keyboard (don’t use handwriting)

– No pictures containing text

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