Economics Assignment: Analyzing Costs, Efficiency, and Gasoline Prices

This economics assignment solution delves into various aspects of economic principles. It begins by examining the dynamics of wholesale and retail gasoline prices, explaining how factors like weather, demand, and location influence price fluctuations throughout the day. The assignment then presents a detailed cost analysis, including the calculation and interpretation of Total Fixed Cost (TFC), Total Variable Cost (TVC), Total Cost (TC), Average Variable Cost (AVC), Average Cost (AC), and Marginal Cost (MC) curves, further analyzing the impact of property taxes and per-unit taxes on these cost components. Furthermore, the assignment explores efficiency in a law firm setting, comparing the costs of hiring attorneys versus paralegals for writing legal briefs. Lastly, it discusses Short Run Average Total Cost (SRATC) and Long Run Average Total Cost (LRATC) curves, using polynomial trendlines to represent long-run costs and inferring the firm's optimization level. This comprehensive solution provides valuable insights into pricing strategies, cost management, and operational efficiency within different economic scenarios, and is available for students to study on Desklib.

Running head: ECONOMICS ASSIGNMENT
ECONOMICS ASSIGNMENT
Name of the Student
Name of the University
Author note

ECONOMICS ASSIGNMENT
1) The selling of goods in large quantities at a low unit price to the retail merchants is
called wholesale. On the other hand, the total price charged for a product which includes
both the manufacturer’s cost and the retail mark-up is called retail price. In case of
wholesale business, goods are sold to the retailers and industries at a bulk at a much lower
cost and in case of retail, goods are sold in small lots. The prices are generally high when
goods are purchased in retail. There are lot of factors which affect the price of gasoline
throughout the day. One of the major factor is weather and climate. The gasoline is
usually denser in the early morning which also affect the price and it tends to be cheaper.
Another factor includes rise in demand during day when people travel more. Location of
the gas station is also an important factor which affect the price of gasoline. Therefore,
the retail prices of gasoline changes throughout the day.
2)
Q TFC TVC TC AVC AC MC
1 120 50 170 50 170
2 120 84 204 42 102 34
3 120 105 225 35 75 21
4 120 118 238 29.5 59.5 13
5 120 128 248 25.6 49.6 10
6 120 137 257 22.83333 42.83333 9
7 120 151 271 21.57143 38.71429 14
8 120 173 293 21.625 36.625 22
9 120 208 328 23.11111 36.44444 35
10 120 260 380 26 38 52
a. The output from 6 to 10 exhibits increasing returns and the output from 1 to 5 exhibits
diminishing returns as marginal cost decreases when the output is 1to5 and starts
increasing when the output is from 6 to 10.

ECONOMICS ASSIGNMENT
1 2 3 4 5 6 7 8 9 10
0
50
100
150
200
250
300
350
400
TFC TVC TC
Fig:1 COST CURVES OF TC, TFC, TVC
1 2 3 4 5 6 7 8 9 10
0
20
40
60
80
100
120
140
160
180
52
COST CURVES
AVC AC MC
Fig 2: COST CURVES OF AVC, AC, MC CURVES
C) Property taxes will affect the fixed cost. When the government imposes a property tax
hike of $30 on all businesses the fixed cost increases by $30 and the TFC becomes $150
($120+$30). Average Cost will go up as fixed cost increases. Average Variable cost curve
will remain same as it will not get affected. Average Fixed cost curve will also up due to
increase in Total Fixed cost. Marginal cost curve will remain the same because the change in
total cost remains the same.

ECONOMICS ASSIGNMENT
d) The tax will affect the variable cost. As the variable cost increases the total cost curve also
increases. The average total cost and the average variable cost increases and therefore both
the AVC And AC curves shifts upward. Finally, as the marginal cost represents the change in
total cost, therefore the MC curve also shifts upward.
e) Property taxes affect only the fixed cost and increases fixed cost to $150. On the other
hand when the government imposes $6 tax on per units the variable cost changes and the total
cost increases as more units are produced.
3) a. The law firm in Tampa currently needs 30 legal briefs every hour. The company has
both the attorneys and paralegals to write legal briefs.
The company will not save money by hiring the four paralegals and firing attorneys because
it can be seen that the attorneys are more efficient than the paralegals. By hiring four
paralegals who can write only 2.5 briefs per hour, the will need only 4 attorneys to write 30
briefs per hour.
Therefore, by hiring four paralegals and four attorneys the company needs to spend
=4*$41.64 +4*$23.66= $261.2
On the other hand, if the company only keeps attorneys to write legal briefs, it will need to
keep only 6 attorneys and the company will need to pay
=6*41.64= $249.84
Therefore by keeping only 6 attorneys the company will save more money as it needs to pay
only $249.84 to the 6 attorneys.
b) When the company hires four newly graduated paralegals who can write 3.75 briefs per
hour and fires some attorneys , it will need four newly graduated paralegals and three
attorneys to write 30 legal briefs per hour. Therefore, the company needs to spend
=4*23.66+ 3*41.64= $219.56
Therefore by hiring the newly graduated paralegals the company spends only $219.56. On
the other hand, when the company hired four paralegals it had to spend $261.2 which was
much higher than $219.56. Therefore, the company saves money by hiring newly graduated
paralegals.
4)

ECONOMICS ASSIGNMENT
0 5 10 15 20 25
0
500
1000
1500
2000
2500
SRATC7
SRATC10
SRATC15
Figure3: SRATC CURVES OF 2007, 2010 and 2015
b)
0 2 4 6 8 10 12 14 16 18
0
20
40
60
80
100
120
140
160
180
LRATC
LRATC
Polynomial (LRATC)
Quantity
The polynomial trendline represents the LRATC of the firm.
c) Long run cost does not have fixed cost. As during long run , firms usually adjusts all cost
and all factors of cost and production are variable. However, the LRATC curve = 6Q2 – 46Q
+ 150, which includes fixed cost. This suggests that the company is small in size and it has
not yet expanded and reached its otimization level.

ECONOMICS ASSIGNMENT
REFERENCE LIST:
Aaberge, R. and Colombino, U., 2013. Using a microeconometric model of household labour
supply to design optimal income taxes. The Scandinavian Journal of Economics, 115(2),
pp.449-475.
Allcott, H. and Wozny, N., 2014. Gasoline prices, fuel economy, and the energy paradox.
Review of Economics and Statistics, 96(5), pp.779-795.
Mundell, R.L., 2014. Production and Cost.
Nicholson, W. 2015. Microeconomic Theory. Cengage Textbooks.
Schiller 2015. Microeconomy Today.
Shepherd, R.W., 2015. Theory of cost and production functions (Vol. 2951). Princeton
University Press.

ECONOMICS ASSIGNMENT

ECONOMICS ASSIGNMENT