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?
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?

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

Answer 1

As per HOMEWORKLIB RULES in case of multiple questions only the first question is to be attempted

Kindly ask rest of the questions in a separate post

1.

A) The curves can be seen as below:

Both the curves are U-shaped. That is, they first decrease as output increases but after reaching a maximum they start to increase as output increases.

B) The two cost curves intersect at the point of minimum of AVC curve, as seen in graph above, as point Q1. This is because it means after this point, the firm starts experiencing decreasing returns to scale. At this point MC = min AVC