Handout $14-3$

Date$\_\_\_\_\_\_\_\_\_$ Name$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$ Class$\_\_\_\_\_\_\_\_$ Professor$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

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l $$ Is your school currently producing at capacity $($i$.$e$.,$ teaching as many students as possible$)?$ What considerations might inhibit full capacity utilization?

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$2.$ Suppose you set up a lawn$-$mowing service and recruited friends to help you. Would the law of diminishing returns apply? Explain.

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$3.$ What are examples of fixed costs for $($a$)$ a pizza shop, $($b$)$ an Internet Service Provider $($ex Spectrum, Altafiber$),($c$)$ a corn farm

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Handout $14-4$

Date$\_\_\_\_\_\_\_\_\_$ Name$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$ Class$\_\_\_\_\_\_\_\_$ Professor$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

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Returns to Scale

Calculate ATC for Firm A$,$ Firm B$,$ and Firm C$.$

Quantity

Firm A

TC

Firm A

ATC

Firm B

TC

Firm B

ATC

Firm C

TC

Firm C

ATC

$1$

$$60$

$60$

$$11$

$11$

$$21$

$21$

$2$

$70$

$35$

$24$

$12$

$34$

$17$

$3$

$80$

$26\mathrm{.}66$

$39$

$13$

$49$

$16\mathrm{.}33$

$4$

$90$

$22\mathrm{.}5$

$56$

$14$

$66$

$16\mathrm{.}5$

$5$

$100$

$20$

$75$

$15$

$85$

$17$

$6$

$110$

$18\mathrm{.}33$

$96$

$16$

$106$

$17\mathrm{.}66$

$7$

$120$

$17\mathrm{.}14$

$119$

$17$

$129$

$18\mathrm{.}42$

$1.$ Which firm has increasing returns to scale as output increases?

Firm A

$2.$ Which firm has decreasing returns to scale as output increases?

Firm B

$3.$ Which firm has increasing returns to scale first, and then decreasing returns to scale, as output increases?