As a result of a tougher law and order policy, South Australia (SA) locks up more prisoners than ever. A former SA premier pointed out that falling crime rates indicate the effectiveness of the policy. Welfare groups, however, are warning that the policy comes at economic costs. The costs of housing prisoners are set to double in a decade and they can rise up to $385 million a year, excluding the cost of building. Welfare groups also argue that the benefits of the tougher law and order policy are starting to diminish. Those who work with prisoners claim that overcrowded prisons come at social costs as prisoners are worse when they are released from prison. Based on the above information answer the following questions:
A) If you are an operations manager at a prison, give an example of a fixed and a variable cost. Justify your answer (hint: how do you calculate AFC?)
B) What strategies would you use to reduce the average (per prisoner) fixed cost? What social costs arise from this scenario?
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