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7. How a change in fixed costs affects the profit-maximizing quantity Shen owns and operates a hot dog stand in downtown San Diego. In order
7. How a change in fixed costs affects the profit-maximizing quantity Shen owns and operates a hot dog stand in downtown San Diego. In order to operate his hot dog stand, regardless of the number of hot dogs sold, Shen must purchase a permit from the local government in San Diego. Shen's initial profit hill is plotted in green (triangle symbols) on the following graph. Suppose the price Shen must pay for a permit decreases by $20 per day. On the following graph, use the purple dlamond symbols to plot Shen's new prot hill, for 0, 10, 20, 30, 40, 50, 60, and 70 hot dogs, after the decrease in the price ofa permit ( with all other factors remaining constant). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 400 350 ' 300 New Profit Hill 250 200 A 150 100 A Initial Prot Hill TOTAL PROFIT (Dollars per day) u m 20 30 4o 50 an 70 EU QUANTITY (Hot dogs per day) Based on the graph, you can tell that Shen initially faces a xed cost of $ '7 per day. Initially, Shen's profitmaximizing level of output is Y hot dogs per day. After the price of a permit falls, Shen's profitmaximizing level of output is V hot dogs per clay
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