Consider the market for ice cream. Suppose that this market is perfectly competitive. The cost structure of the typical ice cream producer is as follows. Average total cost is equal to 50 ATC(Q) Q +;Q, average variable cost is equal to AVC(Q) = ÷Q, and marginal cost is equal to %3D MC(Q) = Q. Now, , suppose that a new scientific study comes out that shows that soil pollution from rock salt (a key input for making ice cream) is extremely hazardous to human health. In response, the government decides to impose harsh re-zoning restrictions on any land once used for making ice cream. This reduces the market rent for land used to make ice cream, which in turn lowers the opportunity cost of operating an ice cream factory. This reduction in the opportunity cost of capital causes the total fixed cost of ice cream production to fall to 32, but there is no change to variable cost. Give formulas for the typical ice cream producer's new average total cost curve ATC(Q) and marginal cost curve MC(Q).
Consider the market for ice cream. Suppose that this market is perfectly competitive. The cost structure of the typical ice cream producer is as follows. Average total cost is equal to 50 ATC(Q) Q +;Q, average variable cost is equal to AVC(Q) = ÷Q, and marginal cost is equal to %3D MC(Q) = Q. Now, , suppose that a new scientific study comes out that shows that soil pollution from rock salt (a key input for making ice cream) is extremely hazardous to human health. In response, the government decides to impose harsh re-zoning restrictions on any land once used for making ice cream. This reduces the market rent for land used to make ice cream, which in turn lowers the opportunity cost of operating an ice cream factory. This reduction in the opportunity cost of capital causes the total fixed cost of ice cream production to fall to 32, but there is no change to variable cost. Give formulas for the typical ice cream producer's new average total cost curve ATC(Q) and marginal cost curve MC(Q).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question

Transcribed Image Text:Consider the market for ice cream. Suppose that this market is perfectly competitive.
The cost structure of the typical ice cream producer is as follows. Average total cost is equal to
50
1
1
ATC(Q)
+÷Q, average variable cost is equal to AVC(Q) =;Q, and marginal cost is equal to
2
MC(Q) = Q.
Now, suppose that a new scientific study comes out that shows that soil pollution from rock salt (a key
input for making ice cream) is extremely hazardous to human health. In response, the government
decides to impose harsh re-zoning restrictions on any land once used for making ice cream. This reduces
the market rent for land used to make ice cream, which in turn lowers the opportunity cost of operating an
ice cream factory. This reduction in the opportunity cost of capital causes the total fixed cost of ice cream
production to fall to 32, but there is no change to variable cost.
Give formulas for the typical ice cream producer's new average total cost curve ATC(Q) and
marginal cost curve MC(Q).
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you


Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON


Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON

Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning

Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education