Question

As the text suggests, our market economy will, in the long run, favor larger and more technologically-advanced businesses that can develop an economy of scale. This, of course, may result in smaller competitors in that industry going out-of-business. In response, Congress spends billions of tax dollars every year to help these smaller and less competitive businesses (e.g. small family farmers) stay in business. Is this a wise use of our tax money, particularly in times of sky-rocketing Federal deficits? Why or why not?

-Your dry cleaning firm currently cleans 300 shirts per day. Fixed costs for the firm are $400 per day. Variable costs are $1 per shirt. Calculate the total cost and the average total cost at the existing output level. Calculate the average fixed cost. What price would your firm have to change in order to realize a normal profit at the current level of output?

-Some people are concerned about the decline of the small family farms and their replacement by large corporate farms. Explain how economies of scale might be a cause of this trend.

Answer 1

1)Small scale industry in very important firstly it leads to decentralization of industries generally big industries are situated in metro cities so it leads to lot of migration from rural area to urban area so pressure on metro cities increase small scale industry reduce this pressure secondly small scale industry generate lot of employment because due to lack of capital they use less sophisticated machine instead of it they use more manual labour comparatively .small scale industry increases entrepreneurship because small scare industry can be started in very less capital

2) total fixed cost =$400,total variable cost =300*1=$300

Total cost =total fixed +total variable cost

Total cost=400+300=$700

Average cost=total cost/total quantity

Average cost =700/300=$2.33

Firm should charge price equal to average cost which is equal to $2.33 in order to earn normal profit .

3) pesticide can be sprinkled in large corporate farm by a helicopter which reduces the cost and is not possible for small individual farm .irrigation and harvesting is also done with sophisticated machinery in large farms to get economy of scale and this is the reason of declining small farm and increasing large farm .