Biwei decides to set up a small business in NYC. The start-up cost is $1000 for a license and the estimated direct cost is $4 per output. Analyze Biweis cost functions and answer questions.

a) After one year, Biweis business becomes profitable. Sonia plans to enter the same business in the same area. What would be the cost facing Sonia? Does she bear the same cost as Biwei?

b) What would be the market competition effect of Sonias entry on Biweis business? Would it reduce Biweis cost? Would it reduce Biweis revenue? Would it reduce Biweis profit? Explain.

c) After another year, Biweis business is in rapid expansion. He wants to raise $1M new capital. He can finance by taking a loan or issuing stock shares. The market interest rate for a loan is 5%. For an angel investor, injecting $1M into Biweis business will dilute 50% of Biweis ownership. What is the capital cost of Biweis business expansion?