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

Q

TVC ($)

10

27,950

20

49,600

30

67,650

40

84,800

50

103,750

60

127,200

70

157,850

80

198,400

90

251,550

100

320,000

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 $21,500. Draw two graphs, both with Q on the horizontal axis: one graph shows TVC and TC, and the other shows AVC, AC, and MC.

c.Suppose that the government imposes a $45,000 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 $750 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?