SOLUTION: ECON 101 Saudi Electronic University Total Cost of Bicycles Discussion

Hey, please go through the following answer document to see if it meets all the criteria. All answers with explanations are included in the document. Answers have been checked for plagiarism, format and grammar. If in case you need any revisions, please let me know :)Question 1.Solution :The total cost of bicycles produced in a day is the sum of the fixed cost and the variablecost.Given that the fixed cost for producing bicycles = $6000 per dayGiven that the variable cost for producing bicycles = $80 per bicycle per daya) Since Average cost (AC) = (Total cost) / (Number of units of good produced),For 30 bicycles,Total cost (TC) = $ (6000 + 30*80) ( Fixed Cost + Total Variable Cost )TC = $ 8400∴ Average cost (30 bicycles) = 8400/30 = $280For 60 bicycles,TC = $ (6000 + 60*80) ( Fixed Cost + Total Variable Cost )TC = $ 10800∴ Average cost (60 bicycles) = 10800/60 = $180For 100 bicycles,TC = $ (6000 + 100*80) ( Fixed Cost + Total Variable Cost )TC = $ 14000∴ Average cost (100 bicycles) = 14000/100 = $140For 300 bicycles,TC = $ (6000 + 300*80) ( Fixed Cost + Total Variable Cost )TC = $ 30000∴ Average cost (300 bicycles) = 30000/300 = $100b)The LRAC (Long Run Average Cost) Curve decreases initially but starts to become flatas the quantity produced increases. Hence, the average costs decrease initially but stabilise as thequantities produced increase.Question 2)Solution :In a market with perfect competition, the price of the commodity is equal to its marginalrevenue (MR). The equilibrium quantity in this market is the quantity at which the marginalrevenue (MR), which is also the price (P), is equal to the marginal cost of production (MC) ofthat commodity.a)Consider the case as drawn in the graph. The equilibrium price P is charged by the firm, which isdecided by the competitive market. This price is also equal to the marginal revenue(MR). Theproduction cost C per unit is decided by the point where the …

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