Assignment 2 Summer 2022 A company produces designer shirts. The cost per shirt is: Materials $10.00 Packaging $.1.50 Design on shirt $5.00 Shipping and handling $3.50 Each worker earns $15,000 annually in salary and benefits. The number of workers changes based on the level of production. This means this is a variable cost. The artist who creates the designs for the shirts is paid $200,000 annually. Senior management are paid a total of $270,000 annually. Other annual costs are: Taxes and Insurance $18,000 Utilities $80,000 Rent $300,000 Miscellaneous Overhead Office Expenses $32,000 The following production is possible: No. Of 0 2 4 6 8 10 12 14 Workers No. Of 0 2000 4000 6000 9000 13000 15000 14000 shirts that can be madeQuestion 1 # of workers Q TVC AVC AFC TC ATC MC 0 0 2 2000 4 4000 6 6000 9000 10 13000 12 15000 14 14000Question 2 The lowest price per shirt to start producing shirts is $60.02. This would cover the average total costs (ATC), with 12 workers. Question 3 The price of a shirt could fall BELOW $0.02 before you would consider shutting down the firm (this is the lowest average variable cost). If you can cover your variable costs, then anything over that will reduce your fixed costs. You may be losing money in the short run, but you are losing less money. For Questions 4 to 7, you need to fill in the chart for each question. You need to STATE how many workers, the level of production and the profit you will make. Your costs, quantities and # of workers will be the same as you calculated in Question 1. Question 4 If the price per shirt was fixed at $150, what would you do? Remember, in the short run you can't alter fixed costs, you can just decide where to set the level of production. You need to calculate total revenue and profit or loss for each level as you are given theaverage revenue. You must state both what level of production you would choose and what dollar profit you would make. (1 mark) # of workers P xQ Price FC + VC Profit or Loss Total Average Revenue Revenue Total Cost Total ProfitQuestion 5 If the price per shirt was fixed at $80, what would you do in the SHORT RUN? Again, remember that you have to keep paying your fixed costs in the short run. Fill in the chart and state what level of production you would use. State what is your profit at this level? (1 mark) # of workers P XQ Price Q FC + VC Profit or Loss Total Average Revenue Revenue Total Cost Total ProfitQuestion 6 If the price per shirt was fixed at $30, what would you do in the SHORT RUN? Fill in the chart and state what level of production you would use. State what is your profit at this level? (1 mark) # of workers P XQ Price FC + VC Profit or Loss Total Average Total Revenue Revenue Cost Total ProfitQuestion 7 If marketing data showed you could sell the following number of shirts at the prices indicated, how many shirts would you produce and what would be your profit? Fill in the chart. (1 mark) # of 2000 4000 6000 9000 13000 15000 Shirts Price $200 175 150 125 110 80 (AR) of Profit or Workers PxQ price FC + VC Loss TR AR Q TC TPQuestion 8 Given your answer in Question 7, and assuming this company is the only supplier, is this market in equilibrium? Explain why or why not. (1 mark) Question 9 Why does quantity decrease when 2 more workers are added? What is the term for this effect? (1 mark) Question 10 (6 marks) a. Explain the difference between productive efficiency and allocation efficiency. Provide an example of each, not in the textbook. (3 marks) b. Assume that the market for shirts is not in equilibrium. Explain the concept of consumer and producer surplus. Create a graph that illustrates consumer surplus and producer surplus. Be sure to label your axises and clearly point out the areas that illustrate both consumer surplus and producer surplus. You don't need to make up numbers to answer this