Question

1. In general, the marginal cost (MC) curve is U-shaped as you learned in the lectures and the textbook. However, exception exists. Please provide at least one industry as an example to illustrate that MC is not U-shaped. Explain briefly the shape of MC in the industry.

2. Engineers at a national research laboratory built a prototype automobile that could be driven 180 miles on a single gallon of gasoline. They estimated that in mass production the car would cost $40,000 per unit to build. The engineers argued that Congress should force U.S. automakers to build this energy-efficient car. In your opinion, is energy efficiency the same thing as economic efficiency? Please explain your opinion and state whether you support it or not.

Please answer all of the two questions by one paragraph for each

Answer 1

Answer:-

1.Natural monopolies. So like electricity company. Comed is a company.

A monopoly describes a situation where all (or most) sales in a market are undertaken by a single firm. A natural monopoly by contrast is a condition on the cost-technology of an industry whereby it is most efficient (involving the lowest long-run average cost) for production to be concentrated in a single form. In some cases, this gives the largest supplier in an industry, often the first supplier in a market, an overwhelming cost advantage over other actual and potential competitors. This tends to be the case in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence high barriers to entry; examples include public utilities such as water services and electricity. It is very expensive to build transmission networks (water/gas pipelines, electricity and telephone lines); therefore, it is unlikely that a potential competitor would be willing to make the capital investment needed to even enter the monopolist's market.

2.

Energy efficiency is defined as a method of dealing and restraining the increase in energy consumption. Something is more energy efficient if it delivers more services for the same energy input, or the same services for less energy input. The prototype automobile that has been discussed will of course bring in revolution in the energy efficient car sector. It will provide with more mileage as compared to any other car with the same amount of gasoline. This will of course save a lot of energy and useful for the environment.

But when dealing with business perspective we need to understand the customers. According Kelley Blue Book, in April 2015 the estimated average transaction price of a new car sold in the U.S. was $33,560. As per the given situation, the production cost itself is $40,000, so obviously the customers need to buy it at a much higher cost. This is an obvious point which needs a clear thinking from the business point of view.

Economic efficiency implies an optimal allocation of resources where each person will be in the best possible position in the given resources. Now if Congress force U.S. automakers to build this energy-efficient car, this would imply moving resources from other sector, if we assume the US economy in an economic efficient position. Otherwise looking from the point of energy efficiency and environment friendly car, it is obviously a good move to produce more of such cars.