Draw a graph showing the family of total cost curves (TC, VC, FC) prior to the

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Question description

On August 1 of this year, the city placed a ban on plastic bags at the

checkout counter of large supermarkets and retail stores. The bags were filling landfills at the

rate of over 28 million pounds per year. Worse, bags that did not get to the landfill were public

eyesores, blowing around the city, sticking in bushes and fences, floating of the beach and lowering the general appearance of the city. It was hoped that the ban would

push customers to acquire reusable bags they would bring to the store with them. Reports from Sept 24, 2015 said that the results have not gone according to plan.

Instead of switching to reusable bags, customers have forced most large chains to offer heavier

plastic bags not covered by the regulations. (This outcome is quite common to economists; it

goes by the name of “unintended consequences” and if you google this, you will find many

similar unexpected outcomes to policy changes.) These new heavier bags are 3 to 4 times as

costly for these stores. For the following questions, please put dollars on the vertical axis and Q

on the horizontal axis where Q is the output of a typical retail outlet which relies on plastic bags

for the output purchased by customers. You should assume that, as usual, these stores are

subject to the law of diminishing marginal product in their production functions.

a) Draw a graph showing the family of total cost curves (TC, VC, FC) prior to the

imposition of the ban and, on the same graph show the impact of the ban on this set of

curves. Be sure to properly label your graphs so I understand the before and after

picture.

b) Draw a graph showing the family of average cost curves (AC, AVC, AFC) and put the

MC on this graph too. As in part (a) show these four curves prior to the imposition of

the ban and, on the same graph show the impact of the ban on this set of curves. Be

sure to properly label your graphs so I understand the before and after picture.

c) These new bags cost about 10 cents more than the old bags. If the average customer

uses 5 bags per purchase (the Q) from a store, draw a representative Supply and

Demand curve to represent the impact on the market for these large retail outlets.

Discuss the important insights from this graph.

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