Wal-Mart is a giant among retail outlets and accounts for major fractions of toy, grocery, and clothing sales in the U.S. and Canada. Wal-Mart's success is partly due to increases in productivity through many innovations in their operation. The result has been a fall in local retail prices between 5-8% when a Wal-Mart moves in.
a. In a graph draw a production function for an average retail outlet and one for Wal-Mart. Assume it has the three stage shape laid out in Figure 8-2.
b. Now on another graph draw the Marginal and Average Total Cost curves for the average retail outlet and Wal-Mart.
c. Briefly, what happens to the marginal product of labor at Wal-Mart compared to K-Mart?