Question.1973 - Please follow all directions provided in Canvas for submission of this assignment. This is a team assignment, so you must work with your assigned team to create one MS Word or PDF file in response to the questions in the attached document. One member of each team will submit your MS Word or PDF document for the whole team. No other formats will be accepted. Please make sure that your file does not exceed 10 MBs in size. As with all other assignments, please utilize well-executed, clearly constructed graphs where requested. Please remember to: Label all axes Label all lines/curves Indicate direction of the shift(s) in curves with arrows, as appropriate. Please make sure that your narrative responses follow the expectations for academic integrity established by the University and by the program and articulated in the syllabus. Any quotations must be clearly indicated through the use of quotation marks, in-text citations, and references. Any paraphrased writing must be indicated through in-text citations and references. The majority of writing (at least 70-80%) must be your own, original writing and analysis. If in doubt, reach out and ask! This assignment consists of 4 (four) questions. Please make sure that you complete all of them. We suggest that you utilize this Microsoft Word template for completing this assignment. Setting (Applies to Questions 1 through 3) Polystyrene (also known as styrofoam) is non-biodegradable and is not easily recyclable. In the United States, many cities and at least one state have enacted laws that ban the use of polystyrene containers. These locales understand that banning these containers will force many businesses to turn to other more expensive forms of packaging and cups, but argue the ban is environmentally important. Suppose my friend Joe owns a firm with a conventional production function resulting in U-shaped ATC, AVC, and MC curves. Finally, suppose that Joe’s business sells takeout food and drinks which are currently packaged in styrofoam containers and cups. Question 1 (10 points) Graphically depict, with proper labels, the short-run AFC0, AVC0, ATC0, and MC0 curves for Joe’s firm prior to the ban on using styrofoam containers. Question 2 (15 points) After the ban is imposed, Joe’s firm switches to the more expensive biodegradable disposable cups. This increases the cost associated with each cup of coffee it produces. Which cost curve(s) will be impacted by the use of the more expensive biodegradable disposable cups? Why? Which cost curve(s) will not shift, and why not? Please use the table below to answer this question. For the second column (“Impacted? If so, how?”), please use one of the following three choices: No shift; Shifts up (i.e., increases: at nearly any given quantity, the cost goes up); or Shifts down (i.e., decreases: at nearly any given quantity, the cost goes down). Cost Curve Impacted? If so, how? Explanation of the Shift: Why or Why Not AFC No change –stays constant Switch to more expensive cups does not affect fixed costs and hence, it remains constant or does not change. MC Increases – shifts up Increase in cost of production of cup of coffee increases marginal cost. AVC Increases - shifts up Average variable cost is the variable cost per unit quantity and hence if marginal cost increases, variable cost increases and AVC also increases. ATC Increases – Shifts up If AVC and AFC increases, ATC increases as it is the sum of the AFC and AVC. Use a copy of the graph you created in Question 1 to depict the new positions of any of the four curves (AFC, AVC, ATC, and MC) that may have shifted, relative to the original curves which depicted the use of inexpensive styrofoam containers. Please label the new curves with subscript 1. (You may want to use a different color for the new curves as well). Question 3 (15 points) Now that Joe’s firm has switched to the more expensive biodegradable disposable cups, the city where his firm operates decides to increase the cost of the annual business license fee from $1,000 to $5,000 to cover the salary of the newly created position of a biodegradable cup enforcement officer. Thus, Joe, who is about to pay his 2023 business license fee, will pay $4,000 more. (You do not have to show the specific magnitude of this change in your graph; creating curves that show the general impact of this change on costs will be sufficient.) Which cost curve(s) will be impacted by this increase in the cost of the annual business license fee? Why? Which cost curve(s) will not shift, and why not? Please use the table below to answer this question. For the second column (“Impacted? If so, how?”), please use one of the following three choices: No shift; Shifts up (i.e., increases: at nearly any given quantity, the cost goes up); or Shifts down (i.e., decreases: at nearly any given quantity, the cost goes down). Cost Curve Impacted? If so, how? Explanation of the Shift: Why or Why Not AFC MC AVC ATC Use a copy of the graph you created in Questions 1 and 2 to depict the new positions of any of the four curves (AFC, AVC, ATC, and MC) that may have shifted, relative to the original curves which depicted the use of inexpensive styrofoam containers from Question 1 and the curves associated with the switch to more expensive biodegradable cups that you had illustrated in Question 2. Please label the new curves with subscript 2. (You may want to use a third color to show curves that shifted in this question). Question 4 (10 points) Carefully explain the role of the Law of Diminishing Marginal Product (diminishing marginal returns) in determining the U-shape of AVC and ATC. (Hint: Think of what a typical production function tells you about the change in the output as you increase the variable input in the short run. Suggested response length: two paragraphs) Please make sure that you explain this concept in your own words. If you use any writing by others, you must clearly identify any quotes used and their source; and the use of any quotes must be limited. The concept of the Law of Diminishing Marginal Product is crucial. As we keep adding more of a variable input like labor or materials to a system where some elements are fixed, like machinery or the factory layout, we'll notice that the additional output you get from each extra unit of the variable input starts to decrease gradually, assuming all other factors remain the same. This idea is rooted in the law of diminishing returns, which suggests that after a certain point, each additional input contributes less to the overall increase in output. In the short run, a traditional production model illustrates how changes in output occur when we increase the variable inputs. Initially, when we introduce more variable inputs alongside fixed ones, we observe a situation where output grows at an accelerating pace. The decreasing segments in the Average Total Cost (ATC) and Average Variable Cost (AVC) curves illustrate this phenomenon. This occurs because as the production process becomes more streamlined, the cost per unit of output diminishes.
Answer Below:
Sure, here is the full solution: The profit-maximizing price for a monopoly is the quantity at which marginal revenue equals marginal cost. In this case, the marginal revenue curve is MR = 100 - 2P. The marginal cost curve is MC = 0.25Q + 1. Setting these two equations equal to each other, we get: 100 - 2P = 0.25Q + 1 Solving for Q, we get: Q = 396 - 8P Substituting this into the demand equation Qd = 100 - 4P, we get: 396 - 8P = 100 - 4P Solving for P, we get: P = 9 Substituting this back into the demand equation, we get: Qd = 100 - 4(9) Qd = 44 Therefore, the monopoly equilibrium price is P = 9 and the monopoly equilibrium quantity is Q = 44. The profit of the monopolist is equal to the difference between its total revenue and its total cost. In this case, the total revenue is TR = PQ = (9)(44) = 396 and the total cost is TC = 0.125Q^2 + Q + 50 = 0.125(44)^2 + 44 + 50 TC = 252.25. Therefore, the profit of the monopolist is TR - TC = 396 - 252.25 = 143.75. 4. To find the socially optimal output level, we need to find the quantity at which marginal cost (MC) equals marginal revenue (MR). In this case, the marginal revenue curve is MR = 100 - 2P and the marginal cost curve is MC = 0.25Q + 1. Setting these two equations equal to each other, we get: 100 - 2P = 0.25Q + 1 Solving for Q, we get: Q = 396 - 8P The socially optimal output level is the quantity at which the demand curve intersects the MR curve. In this case, the demand curve is Q = 100 - 4P. Setting this equation equal to the MR curve, we get: 100 - 4P = 100 - 2P Solving for P, we get: P = 0 Substituting this into the demand equation, we get: Q = 100 - 4(0) Q = 100 Therefore, the socially optimal output level is Q = 100 and the price associated with this output is P = 0. The consumer surplus (CS) is the difference between the maximum price that a consumer is willing to pay for a good and the price that they actually pay. The producer surplus (PS) is the difference between the minimum price that a producer is willing to accept for a good and the price that they actually receive. The deadweight loss (DWL) is the loss of surplus that occurs when a market is not operating efficiently. In the case of a monopoly, the consumer surplus is smaller than the consumer surplus that would exist in a socially optimal market. This is because the monopoly is able to charge a higher price than the socially optimal price. The producer surplus is larger than the producer surplus that would exist in a socially optimal market. This is because the monopoly is able to restrict output and charge a higher price. The deadweight loss is larger than the deadweight loss that would exist in a socially optimal market. This is because the monopoly is restricting output and creating a shortage of the good. In the case of a socially optimal market, the consumer surplus is maximized. This is because the price of the good is equal to the marginal cost of producing the good. The producer surplus is equal to the cost of producing the good. The deadweight loss is zero. This is because the market is operating efficiently and there is no shortage of the good. Here is a table that contrasts the two settings: Monopoly Socially Optimal Market Consumer Surplus Smaller Larger Producer Surplus Larger Smaller Deadweight Loss Larger Smaller Total Surplus Smaller LargerMore Articles From Finance
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