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What is the shop average total cost of a shirt

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Reference no: EM132461047

Avant-garde fashion designer Yohji Yamamoto faces a total fixed cost of $2,000 a day for running his shop in Tokyo. Mr. Yamamoto's marginal cost of a shirt $100, and the profit maximizing number of shirts sold in this shop is 20 a day. Then the ships nearby from other designers start advertising their shirts. Mr. Yamamoto's shop decides to spend $2,000 a day advertising its shirts, and its profit maximizing number of shirts sold jumps to 50 a day.

i) What is the shop's average total cost of a shirt sold after the advertising begins?

ii) What is the shop's average total cost of a shirt sold before the advertising begins?

iii) Before advertising: Suppose that the price elasticity of demand is 2. Can you say what happens to the price of the Yamamoto shirt? What happens to the markup? Compute the amount of maximal profits.

iv) After advertising: Suppose that the price elasticity of demand of equals 4. Can you say what happens to Yamamoto's economic profit?

Reference no: EM132461047

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