Essay About Fixed Costs Agassi And Social Benefits

a.  [pic 1]b. [pic 2]c. Clinic should be expanded as Marginal Revenue > Marginal CostAgassi’s statement is not reasonable. The fixed costs Agassi refers to are sunk costs. They will be paid regardless of how many times he uses the plane.  Agassi should base his decision on whether to use the plane on whether his marginal benefit for a particular ride is greater than the marginal cost of that particular ride.a. [pic 3]          [pic 4]     Average Cost [pic 5]b. To minimize average total cost, the firm would want to be large as the term  will → 0 as x → ∞.[pic 6]The article is referring to the accounting profit since it is pointing out the fact that marginal explicit costs will be greater than marginal revenue on every car sold.The economic profit will take into account the opportunity cost which in this case would be the cost to close and reopen the factories as well as the wages of the workers that must be paid regardless.a. Social benefits include both private benefits (to the firm) and external benefits (to external parties affected by the actions of the firm). Therefore, the social benefits in this example include the negative external benefits of the emissions.        Socially EfficientMSB = MC500 – 20A = 200 + 5AA = 12Privately EfficientMSB = MC400 – 35A = 200 + 5AA = 5b. Socially Efficient A = 12MSB = 500 – 20(12) = 260MPB = 400 – 35(12) = -20MC = 200 +5(12) = 260Privately Efficient A = 5MSB = 500 – 20(5) = 400MPB = 400 – 35(5) = 225MC = 200 +5(5) = 225c. d. The private firm must be offered incentives to not pollute as much. For example, government can impose a tax on sulfur dioxide emissions, which increase the costs for the polluting firm. As an alternative, the polluting firm can also be subsidized by society to pollute less. Either way, there needs to be an action to change the polluting firm’s marginal cost of polluting to incentivize them to pollute less.