Micro Economics
Q1. You have been hired as an economic consultant by a price-taking (a perfectly competitive) firm that produces T-shirts. The firm already has a factory, so it is operating in the short-run. The price of T-shirt is $9, the hourly wage is $24, and each T-shirt requires $1 worth of material. The following table shows the relationship between the number of workers and output of T-shirts.
| Workers | 10 | 11 | 12 | 13 | 14 | 15 |
| Output | 5 | 29 | 41 | 47 | 50 | 52 |
| Labor cost | 240 | 264 | 288 | 312 | 336 | 360 |
| Material cost | $5 | $29 | $41 | $47 | $50 | $52 |
| Fixed cost | $2 | $2 | $2 | $2 | $2 | $2 |
| Total cost | $247 | $295 | $331 | $361 | $388 | $414 |
| Marginal cost | – | 48 | 36 | 30 | 27 | 26 |
| Revenue | 45 | 261 | 369 | 423 | 450 | 468 |
| MR | – | 216 | 108 | 54 | 27 | 18 |
Note: For answering question-1 (a) and (b) students are required to show all possible calculations.
Q2. See around you and pick up a firm which is either dominating the market or trying to create monopoly.
- (a) Write in brief about the firm chosen and explain how the firm is trying to create a monopoly or dominating the market? (2 points)
- (b) Elaborate your opinion, why we as a society should worry about a firm trying to create a monopoly? (2points)
- (c) Discuss some policy options a government could have to intervene in such market and prevent the monopoly creation. (2points)
