On August 1 of this year, the city placed a ban on plastic bags at thecheckout counter of large supermarkets and retail stores. The bags were filling landfills at therate of over 28 million pounds per year. Worse, bags that did not get to the landfill were publiceyesores, 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 wouldpush 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 heavierplastic bags not covered by the regulations. (This outcome is quite common to economists; itgoes by the name of “unintended consequences” and if you google this, you will find manysimilar unexpected outcomes to policy changes.) These new heavier bags are 3 to 4 times ascostly for these stores. For the following questions, please put dollars on the vertical axis and Qon the horizontal axis where Q is the output of a typical retail outlet which relies on plastic bagsfor the output purchased by customers. You should assume that, as usual, these stores aresubject 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 theimposition of the ban and, on the same graph show the impact of the ban on this set ofcurves. Be sure to properly label your graphs so I understand the before and afterpicture.b) Draw a graph showing the family of average cost curves (AC, AVC, AFC) and put theMC on this graph too. As in part (a) show these four curves prior to the imposition ofthe ban and, on the same graph show the impact of the ban on this set of curves. Besure 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 customeruses 5 bags per purchase (the Q) from a store, draw a representative Supply andDemand curve to represent the impact on the market for these large retail outlets.Discuss the important insights from this graph.
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