Microeconomics

This assignment is an individualassignment.

• Due date for Assignment 2 is 16/04/2022

• The Assignment must be submitted only in WORD format via allocated folder.

• Assignments submitted through email will not be accepted.

• Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.

• Students must mention question number clearly in their answer.

• Late submission will NOT be accepted.

• Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.

• All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.

Assignment Questions

Maximum Marks-10

1) Consider the long-run production of shirts. The cost of the indivisible inputs used in the production of shirts is $400 per day. To produce one shirt per day, the firm must also spend a total of $55 on other inputs-labour, materials, and other capital. For each additional shirts, the firm incurs the same additional cost of $55.

a) Compute the average cost for 50 shirts, 100 shirts, 130 shirts, and 200 shirts. (1.5 Marks)

b) Draw the long-run average cost curve for 50,100,130 and 200 shirts per day. (1.5 Marks)

2) Explain the relationship between short run ATC and MC and why ATC is U-shaped in short run? (2 Marks)

3) Explain equilibrium of the firm under perfectly competitive market by choosing output level at which

a. P=MC=MR and Firm is making zero economic profit (1Mark)

b. P=MC=MR and Firm is making a loss (1 Mark)

c. Explain shut down rule with the help of graph (1 Mark)

4) Define the price elasticity of demand and explain its role to predict changes in quantity and total revenue (2 Marks).