Reference no: EM133080411

Polystyrene (also known as styrofoam) is non-biodegradable and is not easily recyclable. In the United States, many cities and at least one state have enacted laws that ban the use of polystyrene containers. These locales understand that banning these containers will force many businesses to turn to other more expensive forms of packaging and cups, but argue the ban is environmentally important. 

Suppose my friend Joe owns a firm with a conventional production function resulting in U-shaped ATC, AVC, and MC curves. Finally, suppose that Joe's business sells takeout food and drinks which are currently packaged in styrofoam containers and cups. 

Question 1 

• Graphically depict, with proper labels, the short-run AFC₀, AVC₀, ATC₀, and MC₀ curves for Joe's firm prior to the ban on using styrofoam containers.

Question 2 

After the ban is imposed, Joe's firm switches to the more expensive biodegradable disposable cups. This increases the cost associated with each cup of coffee it produces. 

• Which cost curve(s) will be impacted by the use of the more expensive biodegradable disposable cups? Why? Which cost curve(s) will not shift, and why not?

Use a copy of the graph you created in Question 1 to depict the new positions of any of the four curves (AFC, AVC, ATC, and MC) that may have shifted, relative to the original curves which depicted the use of inexpensive styrofoam containers. label the new curves with script 1. 

Question 3

Now that Joe's firm has switched to the more expensive biodegradable disposable cups, the city where his firm operates decides to also increase the cost of the annual business license fee from $2,000 to $4,000 per firm. Thus, Joe, who is about to pay his 2021 business license fee, will pay $2,000 more. (You do not have to show the specific magnitude of this change in your graph; creating curves that show the general impact of this change on costs will be sufficient.)

• Which cost curve(s) will be impacted by this increase in the cost of the annual business license fee? Why? Which cost curve(s) will not shift, and why not?
• Use a copy of the graph you created in Question 1 to depict the new positions of any of the four curves (AFC, AVC, ATC, and MC) that may have shifted, relative to the original curves which depicted the use of inexpensive styrofoam containers from Question 1 and curves associated with the switch to more expensive biodegradable cups that you had illustrated in Question 2. label the new curves with script 2.