Q1 :Consider the market for T-shirts in Melbourne and use the 4-step process of analysing market shocks (Also known as comparative statics) to determine what happens in the each of the following scenarios (Note each scenario is independent).

a) The rate of unemployment falls boosting the general level of consumer income in Melbourne.

b) The cost of inputs for producing T-shirts increases.

Q2: Perfect Competition

The market for corn chips is perfectly competitive with many small producers. Each small firm produces 5 million packets of chips per year. A packet of chips has an average total cost of $1.60 and an average fixed cost of $0.20. Each packet sells for $2:60.

a) Assuming firms are maximising profit, what is the marginal cost of producing a packet of corn chips?

b) Calculate the profit (loss) on an individual packet of corn chips.