Question

1.question

Part I:
Using a well labeled graph and words that explain your graph, show the short run average variable cost curve and the marginal cost curve.
a. Explain the shapes of the two cost curves.
b. Where do the two cost curves intersect? Why?

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Part lI: The claims processing office of an insurance company is planning to double the square footage of its office space gradually over the next five years. Its cost accountants are forecasting that by doing so the average total cost per claim processed will decline from $50 per claim today to $35 per claim five years hence. Can we say that this insurance company's claims office has economies of scale, diseconomies of scale or neither in "producing" processed claims and why is this the case?

2. question

Explain fully if the following goods/services are excludable (or not) and rival (or not). Then categorize them accordingly.
1. Shoes
2. Main Street in Bethlehem
3. Maine lobster

Answer 1

As per HOMEWORKLIB POLICY I will answer only question no 1. Kindly accept the HOMEWORKLIB POLICY.

NC AVC 0

Q1 Part 1

b)The short run average variable cost curve and the marginal cost curve intersect at the lowest point of the average variable cost curve.This is because the marginal cost of producing the next unit of output will affect the average variable cost . As long as marginal cost is less than average variable cost , average variable cost will fall.Slowly marginal cost of producing one more unit will be greater than average variable cost and then average variable cost will rise.

a)Short run cost curves like the average variable cost and the marginal cost curve tend to be U shaped due to the law of diminishing returns.In the short run , capital is fixed and when more labor is employed there is decrease in productivity and marginal cost increases..

Part II

The insurance company's claim office has economies of scale as with increase in the space output will increase and cost will fall.