Some estimates for the cement industry suggest the following relationship between capacity and average cost:
Capacity (thousands of tons: 250 500 750 1000 1,250 1,500 1,750 2,000 Average Cost: 28.78 25.73 23.63 21.63 21.00 20.75 20.95 21.50
a. Assume that fixed cost is 0 so that, total cost = capacity × average cost. Derive a column of marginal cost for this industry.
b. At what production level are scale economies exhausted?
c. Calculate the scale economy index for the production levels 500, 750, 1,000, 1,500, and 1,750.