dolution

 

1. Summer Tees and Fancy Tees make up an industry of two firms producing T-shirts. The table below shows the average cost of producing T-shirts for the two companies.

 

               

 

a. Calculate TC and MC for both companies and fill in the table.

 

b. Draw, in separate diagrams, the ATC and MC curves for each firm.

 

c. Summer Tees is initially producing 30 shirts; Fancy Tees is initially producing 15 shirts. What is the total industry production cost?

 

d. Now suppose that Summer Tees produces 10 fewer shirts. By how much do its costs fall?

 

e. Suppose that Fancy Tees produces 10 more shirts. By how much do its costs rise?

 

f. If the two firms are to produce 45 shirts in total, what is the cost-minimizing way to allocate production between the two firms? (Assume that production must be changed by increments of five shirts, as shown in the table.)

 

g. Explain how this question relates to the concept of productive efficiency.