Assume that Starlight Express produces bedside tables in the perfectly competitive bedside table market.

TABLE 1

Output per week

Total Cost

AFC

AVC

ATC

MC

0

200

1

235

2

260

3

280

4

310

5

350

6

400

7

470

8

550

9

650

10

770

(a)Fill in the missing values for AFC, AVC, ATC and MC in table 1.

(b)Suppose the equilibrium price in the bedside table market is $80.

How many bedside tables should Starlight Express produce, and how much profit will they make?

(c)If next week the equilibrium price of bedside tables drops to $40, should Starlight Express shut down?Explain?

(d)Assuming Starlight Express is operating in the short-run and factor prices are constant, at what output level does the law of diminishing returns set in?

Question 2 Assume that Starlight Express produces bedside tables in the perfectly competitive bedside table market. TABLE 1 Output per week Total Cost AFC AVC ATC MC O 200 235 260 280 310 350 400 470 550 lDOOxIO'U'I-FUJNH 650 (3) lb) (C) id) I.- O 770 Fill in the missing values for AFC, AVC, ATC and MC in table 1. Suppose the equilibrium price in the bedside table market is 580. How many bedside tables should Starlight Express produce, and how much profit will they make? If next week the equilibrium price of bedside tables drops to 540, should Starlight Express shut down? Explain? Assuming Starlight Express is operating in the short-run and factor prices are constant, at what output level does the law of diminishing returns set in? (2+2+3+1=8marks)