ECON 101 SEU Microeconomics Long Run Production of Bicycles Worksheet

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Q1) 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.

Q2) 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.