Q1:

Last year, your company purchased a site license to the accounting software suite CookTheBooks for $14,900. Yesterday, your IT department discovered that the software erroneously calculates 2 + 2 = 5 and suggested purchasing a replacement software, BeanCounter, for $12,500. How should your company assess or quantify the cost of the decision to replace its software?

The BeanCounter software includes a monthly fee of $85 per site license (i.e., the fee to the company is $85 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)?

Q2:

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

Q	TVC ($)
10	24,850
20	40,800
30	49,950
40	54,400
50	56,250
60	57,600
70	60,550
80	67,200
90	79,650
100	100,000

a. Identify the range of output exhibiting increasing returns (increasing MP), and the range exhibiting diminishing returns (decreasing MP).

b. Current fixed costs for the company equal $11,700. Draw two graphs, both with Q on the horizontal axis: one graph shows TVC and TC, and the other shows AVC, ATC, and MC.

c. Suppose that the government imposes a $6,750 property tax hike on all businesses; how will that affect your two graphs; i.e., which cost curves will be affected and how?

d. Suppose instead that the government considers your production process to be polluting, and imposes a $90 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?

e. 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?