Reference no: EM132428670
1. Clean' n 'Shine is a competitor to Spotless Car Wash. Like Spotless, it must pay $75 per day for each automated line it uses. But Clean 'n 'Shine has been able to tap into a lower-cost pool of labor, paying its workers only $50 per day. Clean' n Shine's production technology is given in the table below. To determine its short-run cost structure, fill in the blanks in the table.
a. Over what range of output does Clean 'n' shine experience increasing marginal returns to labor? Over what range does it experience decreasing marginal return to labor?
b. As output increases, how do marginal costs, average variable costs, and average total cost behave? Explain.
c. Looking at the numbers in the table how is the relationship between MC and AVC? And what about the relationship between MC and ATC?
Short-Run Costs for clean 'n' Shine Car Wash
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Output
(per Day) Capital Labor TFC TVC TC MC AFC AVC ATC
0 1 0 $... $... $... - - - -
30 1 1 $... $... $... $... $... $... $...
70 1 2 $... $... $... $... $... $... $...
120 1 3 $... $... $... $... $... $... $...
160 1 4 $... $... $... $... $... $... $...
190 1 5 $... $... $... $... $... $... $...
210 1 6 $... $... $... $... $... $... $...
2. A) Explain economic efficiency using the consumer and producer surplus concept. Graphical illustration is required to answer this question.
B) Under what conditions there will be efficiency losses. Draw a graph and show the areas of efficiency losses.
C) What are characteristics of public goods. Explain your answer using examples.