38. Do you think that the taxicab industry in large cities would be subject to significant economies of scale?

Why or why not?

Problems

39. A firm is considering an investment that will earn a 6% rate of return. If it were to borrow the money, it

would have to pay 8% interest on the loan, but it currently has the cash, so it will not need to borrow.

Should the firm make the investment? Show your work.

40. Return to Figure 7.7. What is the marginal gain in output from increasing the number of barbers from 4 to

5 and from 5 to 6? Does it continue the pattern of diminishing marginal returns?

41. Compute the average total cost, average variable cost, and marginal cost of producing 60 and 72 haircuts.

Draw the graph of the three curves between 60 and 72 haircuts.

42. A small company that shovels sidewalks and driveways has 100 homes signed up for its services this

winter. It can use various combinations of capital and labor: intensive labor with hand shovels, less labor
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