Question: A firm producing children’s bikes in a competitive market has the following short run cost structure. Cost data is in $’s. Use the data below to answer the following:

1. The MC = ________ at Q = 4. The AVC = ______ at Q = 6.
   The AC = ______ at Q = 9.
2. Is it true that the data implies production is subject to the law of diminishing returns? Explain.
3. Explain why when the MC is increasing it is possible for the AC to increase or to decrease.
4. What is the shut down (short run break-even) price? Compute the shut down price from data above. How is the shutdown price different from the long run break-even price?
5. Explain why the supply curve of the firm is the MC curve above AVC. If worker productivity increased due to technology improvements, how would that affect the supply curve of the firm?

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