9 Suppose that Tommy Hilfiger’s marginal cost of a jacket is a constant £100 and the total fixed cost at one of its stores is £2,000 a day. This store sells 20 jackets a day, which is its profit-maximising quantity. Then, the stores nearby start to advertise their jackets. The Tommy Hilfiger store now spends £2,000 a day advertising its jackets, and its profit-maximising number of jackets sold jumps to 50 a day.

a What is this store’s average total cost of a jacket sold (i)

before the advertising begins and (ii) after the advertising begins?

b Can you say what happens to the price of a Tommy Hilfiger jacket, Tommy’s markup and Tommy’s economic profit? Why or why not? 

Transcribed Image Text:

Price and cost (euros per pair) 25 20 20 15 10 5 MC X 0 50 MR 100 150 200 ATC D Quantity (pairs of running shoes per week)