Suppose that Tommy Hilfigers marginal cost of a jacket is a constant $100 and at one of
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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 output jumps to 50 jackets a day.
Can you say what happens to Tommy’s markup and its economic profit? Why or why not?
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The effect on the markup is uncertain because the effect on t...View the full answer
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