Suppose that Tommy Hilfiger's marginal cost of a jacket is a constant $100 and at one of the firm's shops, total fixedcost is $2,000 a day.The profit-maximizing number of jackets sold in this shop is 20 a day.When the shops nearby start to advertise their jackets, this Tommy Hilfiger shop spends $2,000 a day advertisingits jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.What happens to Tommy's markup and its economic profit? Why?Tommy's markupA. rises, falls, or remains unchanged depending on the effect of advertising on demandOB. falls because advertising decreases demandOC. rises because advertising increases demandOD. does not change because advertising is generally ineffectiveSearchIn the short run, Tommy's economic profit**A. is unknown, zeroOB. decreases with advertising, zeroOC. increases with advertising, positiveOD. is unknown, positiveIn the long-run, Tommy's economic profit isNext

Before Advertising begins:Marginal Cost of a jacket = $ 100Total Fixed Cost = $ 2,000 a dayQuantity…

Answered: What happens to Tommy's markup and its…

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What happens to Tommy's markup and its economic profit? Why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose that Tommy Hilfiger's marginal cost of a jacket is a constant $100 and at one of the firm's shops, total fixed
cost is $2,000 a day.
The profit-maximizing number of jackets sold in this shop is 20 a day.
When the shops nearby start to advertise their jackets, this Tommy Hilfiger shop spends $2,000 a day advertising
its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.
What happens to Tommy's markup and its economic profit? Why?
Tommy's markup
A. rises, falls, or remains unchanged depending on the effect of advertising on demand
OB. falls because advertising decreases demand
OC. rises because advertising increases demand
OD. does not change because advertising is generally ineffective
Search
In the short run, Tommy's economic profit
**
A. is unknown, zero
OB. decreases with advertising, zero
OC. increases with advertising, positive
OD. is unknown, positive
In the long-run, Tommy's economic profit is
Next

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