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 2 12 14 Workers No. Of 2000 4000 6000 9000 13000 15000 14000 shirts that can be made Question 1 Using all information provided, complete the following table. It would be easier if you set this up in an Excel spreadsheet. When you are done, please insert it into a Word document with your answers. You will use this table to answer Questions 2 and 3. We are working in dollars and cents so your answers should be in dollars and cents as well (2 decimal places. (6 marks) # of workers TVC AVG TC ATC mm----- m -I_______ -3_______ -EI_______ ________ _______ ________ Question 2 What is the lowest price you would be willing to start producing this new product? Don't round up or down. Be accurate. (1 mark) Question 3 If you were already committed to the fixed costs, how low could the price per shirt fall before you would consider shutting down production? Remember you have to keep paying your fixed costs whether you produce any shirts or not. If you can cover your variable costs, then anything over that will reduce your xed costs. You may be losing money in the short run but you are losing less money. Don't round up or down. Be accurate. (1 mark) For Questions 4 to 7, you need to ll 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 the average revenue. You must state both what level of production you would choose and what dollar profit you would make. (1 mark) FC + VC Profit or Loss Total Average Revenue Revenue Total Cost Total Profit Question 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) mull- workers FC + VC Profit or Loss ----- Revenue Revenue Total Cost Total Profit Question 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 prot at this level? (1 mark) -ME-_ workers FC + VC Profit or Loss ---- Revenue Revenue Cost Total Profit _____ _____ Question 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 prot? Fill in the chart. (1 mark) MW Shirts m AR # f Profit or Workers \"all. FC + VC Loss -_\"n Question 8 (2 marks) Why does quantity decrease when 2 more workers are added? What is the term for this effect? Question 9 (6 marks) a. Explain the difference between productive efficiency and allocative efciency. 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