Economics Question

Three Conditions

For this week’s assignment, address the following problems.

Make sure to show your work when solving these problems.

1. Describe the change in average costs and the relationship between marginal and average costs under the following three conditions as quantities produced increase:

Three Conditions

	Average Cost	Marginal Cost Versus Average Cost
Constant Returns to Scale	Rising, Falling, Flat	Higher, Lower, Equal
Decreasing Returns to Scale	Rising, Falling, Flat	Higher, Lower, Equal
Increasing Returns to Scale	Rising, Falling, Flat	Higher, Lower, Equal

1. The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $18,000), and after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $8,000). Does this production exhibit scale economies or scope economies?