a)Assume that you have taken 12 months' leave without pay from your full-time job as a dressmaker and set up a business ironing and repairing clothes. You have taken out a 12-month lease on a small shopfront in a suburban shopping centre. You have bought all the equipment you need for your business and arranged the fit-out of your premises to accommodate your work requirements. You have paid for these set-up costs out of your previous savings. You will not be able to buy any more equipment during the next 12 months. For the year, your total explicit costs are $25 500 and your implicit costs are $45 000.

Given the above information, explain

i)Which of the above would constitute your explicit costs ?

ii)What would be the revenue you need to earn if you are looking for a $5000 economic profit ?

(4 marks)

b)Using an appropriately labelled diagram, explain why marginal cost (MC) crosses the Average Total costs (ATC) curve at its minimum point.