Suppose you own a business that produces t-shirts. To produce, you lease one machine at $20 / week. The machine requires one worker to be operated. The machine, operated by the worker, produces one T-shirt per hour. The worker is paid $1/hour on weekdays (up to 40 hours), $2/hour on Saturdays (up to 8 hours), $3 on Sundays (up to 8 hours).

(a) Suppose that you produce 40 t-shirts per week. What is your total cost? Your marginal cost? Your average cost? What if your production level is 45? What if it is 50?

(b) Plot the marginal cost curve on a graph.

(c) Suppose that the inverse demand for t-shirts is () = 4 40 , where is the output and the price. What is the marginal revenue curve? Plot it on the same graph as the marginal cost curve.

(d) Once your fixed costs for the week are paid, what is your profit-maximizing production level? What is the optimal price? What is your profit? Given this profit, will you continue to produce next week? Explain.

(e) What would change in your answer to part (d) if the cost of leasing the machine were $100 /week? Explain.

(f) What would change in your answer to part (e) if you had signed a contract with the machine's owner that commits you to lease the machine for the whole year? Explain.