NOTE: In questions 3 and 4 I have links to the Bureau of Labor Statistics and the Census Bureau. It isn't necessary that you follow these links or obtain new data from them; I just thought it would make the questions more interesting and relevant, and that you would be interested in seeing the sorts of helpful data that is available.

Also, you should not have to run regressions to solve any of the four problems.

Econ 705 Module 4 Assignment

1. Last year, your company purchased a site license to the accounting software suite CookTheBooks for $1,150. Yesterday, your IT department discovered that the software erroneously calculates 2 + 2 = 5 and suggested purchasing a replacement software, BeanCounter, for $950. How should your company assess or quantify the cost of the decision to replace its software?

The BeanCounter software includes a monthly fee of $37 per site license (i.e., the fee to the company is $37 per month regardless of the number of computers on which the software is installed or how often it is used); how would the company characterize this cost (in terms of the concepts we've discussed this week)?

2. You have collected the following data on output and total variable costs:

Q	TVC ($)
10	5,830
20	9,840
30	12,810
40	15,520
50	18,750
60	23,280
70	29,890
80	39,360
90	52,470
100	70,000

1. Identify the range of output exhibiting increasing returns (increasing MP), and the range exhibiting diminishing returns (decreasing MP).
2. Current fixed costs for the company equal $5,400. Draw two graphs, both with Q on the horizontal axis: one graph shows TVC and TC, and the other shows AVC, ATC, and MC.
3. Suppose that the government imposes a $8,700 property tax hike on all businesses; how will that affect your two graphs; i.e., which cost curves will be affected and how?
4. Suppose instead that the government considers your production process to be polluting, and imposes a $112 tax per unit produced (replacing the property tax in the previous question). How does this tax increase compare to the property tax increase, in terms of the effect on your company's cost curves?
5. Your boss says "either of these taxes is going to force us to change our production levels." Given what you know about optimization analysis, how would you respond?

3. You are HR director for a growing architecture firm in Fort Lauderdale, Florida, which currently has need of drafting 20 blueprints every hour. Each of your company's architects can create on average four blueprints per hour. You are considering hiring four drafters to shoulder the load; each drafter is slower than the architects and can create on average only two blueprints per hour. You scan the current wages in the Ft. Lauderdale area (https://www.bls.gov/oes/current/oessrcma.htm) and notice that the architects in your company earn the local occupational median wage of $30.14 per hour, but that the prospective four drafters will likely each want to get paid their local occupational median wage of $23.52 per hour.

a. Would your company save money in the creation of the 20 blueprints by hiring the four new drafters and firing some architects?

b. The Bureau of Labor Statistics projects that employment of drafters over the next decade will drop by 1.2%, compared to an increase of 2.7% for architects (https://www.bls.gov/emp/tables/emp-by-detailed-occupation.htm); your company assumes that this will reduce the number of lower-skilled drafters, resulting in a higher productivity (now 3 blueprints per hour instead of 2) and that reduced demand will lower wages slightly (forecast to be $22.10). If the other values remain the same (architect wage and speed, need for 20 blueprints per hour), would the company save money in the creation of the 20 blueprints by hiring four drafters and firing some architects?

4. You work for a company that is being accused of monopoly behavior, given its large size. Comparisons are made to the industry standard, where each establishment has on average about 15.8 employees. Your company is bigger than that, but you want to provide evidence against the monopoly charges.

a. You've collected data at different times in your company's history, when you had different amounts of capital.

In 2012, SRATC = 5.5Q²- 200Q + 6,000

In 2017, SRATC = 4.5Q²- 450Q + 16,000

In 2022, SRATC = 4.8Q²- 340Q + 8,000

Plot these three different SRATC curves (have Q go from 0 to 100 in units of 5; make the maximum on the vertical axis be 10,000), and discuss how (and possibly why) your company has changed since 2012 in terms of its size.

b. Make another column labeled "LRATC" that includes three points: 2012's SRATC when Q = 5; 2022's SRATC when Q = 35, and 2017's SRATC when Q = 75. Plot these three points on your graph (be sure to show, don't hide, the dots) and add a 2^nd-degree polynomial trendline to represent your company's LRATC.

c. In a more competitive industry with smaller firms, typical LRATC curves follow LRATC = 6.2Q² - 90Q + 3,800. Using all available information in this question, present an argument that could be used to justify your company's size.