Jack owns an auto repair shop, specializing in European cars. With three full-time mechanics, Jack's shop repairs/services 15 cars per week. Each worker is paid $500 per week. By hiring another mechanic, at the same salary, he can increase his weekly output to 20 cars. A fifth mechanic would increase his output to 22, and a sixth one to 23. After hiring the seventh mechanic Jack would see his output drop to 22.
a. Calculate Jack's total variable cost (TVC), marginal cost (MC), and average variable cost (AVC) at these four levels of output.
b. If the average price that Jack charges for each car he services is $500, how many cars per week should he take in? (Explain)
c. Suppose Jack's weekly fixed costs is $1500. Assuming he is a profit maximizer, determine his weekly profit.
d. Does Jack's production function exhibit, constant, increasing, or diminishing returns (to labor)?
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