Question 1 . In 2004, the country of Lesotho in southern Africa made most of its export earnings, 90% in 2004, from garment and textile factories. Many of these clothing items, particularly t-shirts, were sold in the U.S. Sub Question a. Assume that the market for cotton textiles is perfectly competitive. Assume, also, that the market price for a t-shirt is $3 and the marginal cost function for a typical Lesotho textile factory is MC = .5 + .1Q (Q is in 1000’s of t-shirts). Solve for Q, the output of a typical Lesotho factory. Using a graph, illustrate the long run equilibrium for this Lesotho garment factory in 2004 (hint: you will need to graph the above two functions plus a hypothetical (but plausible) ATC function). Sub Question b. At the beginning of 2005, the U.S. ended textile quotas from China. This made it much easier for the U.S. to import inexpensive textiles, such as t-shirts, from China. Using S&D analysis, illustrate how the end of textile quotas on China would impact the market price for t-shirts. Sub Question c. By the end of the first quarter of 2005, 6 of Lesotho’s 50 clothing factories had shut down. These shutdowns eliminated close to 6000 of Lesotho’s 50,000 textile jobs. What was the relationship between average costs and price for these 6 firms? Draw a graph for one of these 6 firms with MC, MR, AVC and ATC functions to illustrate why this firm would have shut down.
Question 1 . In 2004, the country of Lesotho in southern Africa made most of its export earnings, 90% in 2004, from garment and textile factories. Many of these clothing items, particularly t-shirts, were sold in the U.S. Sub Question a. Assume that the market for cotton textiles is
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