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Question 1(50 Points): HookAndLoop is Killing the Flooglebinder! Your firm is one of many producers of aglets, those plastic coating thinga majigs that go on
Question 1(50 Points): HookAndLoop is Killing the Flooglebinder! Your firm is one of many producers of aglets, those plastic coating thinga majigs that go on the end of shoelaces (they are NOT called flooglebinders, which was a nonsense word made up by a Tom Cruise character in a movie because he didn't know the actual word). Shoe companies, such as Nike and Adidas, don't really care which firm they buy from. Market demand is neither perfectly elastic nor perfectly inelastic. The firms producing aglets are generally identical because the production process hasn't changed in decades. The production function for each firm is q = 15.25 x . K L . . . mm [1, El' where q = thousands of aglers. There Is only one firm, Cocktail, Inc., that produces the machines required to make aglets. Because of the complexity of running the aglet production equipment, Cocktail rents both the machines and trained workers to aglet production firms as a package deal. Cocktail will only sign one-year contracts. Assume ATC and AVC are \"U-shaped\" and that MC is not constant. A. (10 points) Your firm and the industry are in long run equilibrium. Illustrate current market demand and supply, and their relationship with the cost curves using appropriate graphs. B. (15 points) Unfortunately, Velcro (which is also an incorrect term, because Velcro . is a C. (15 points) Starting with the LR from Part A, using an isoquant/cost graph, show and explain trademark for hook-and-loop fasteners) is taking over as people become lazier and don't want what happens in the SR from the change in Part B. to tie their shoes anymore. All the major shoe producers are switching a large percentage of their shoes to Velcro . "laces". Illustrate the SR impact(s) and explain any changes you make. Use your graph(s) for Part A and label any changes with the subscript "B".D. (10 points) Using ONLY your graph in Part C, show and explain what happens in the LR, assuming that your firm does not shut down. Question 2 (50 Points): Dinghy's Restaurant You are the owner of Dinghy's Restaurant, the only restaurant and bar at Honeymoon Beach, which is located on Water Island, just south of St. Thomas in the U.S.V.|. People get there by water taxi from Crown Bay marina. The beach is a steep walk from the ferry dock, but you drive customers from the dock to your establishment for free in an open-air taxi. The drinks are great, the food is fabulous, the water is beautiful, and the beach is gorgeous! Tourists and locals flock to your restaurant most of the year and you're only closed for Christmas day. You're lucky in that years ago, you bought a small portion of the beach and the building for a great price from the government (which owned the building and beach since it was used for decades as a dock and customs house for foreign ships), paying cash you received from the sale of your previous business. Can you say \"No Mortgagellll\"? You use a cruise ship-style model [you do not sell items individually}: People pay a single price for a wristband that entitles them to an all-you-can-eat buffet and up to 10 drinks (beer, mixed-drinks, soda pop, water, orjuice). if someone wants more drinks, they have to buy another wristband. The current price for a wristband is $75. Your average daily production function is Q = 12.22K0'25LD'9\B. (10 points) Will you shut down? Explain. C. (15 points) Illustrate your current producer surplus using an appropriate diagram.D. [15 points} The USVI government would like to turn Honeymoon Beach into a turtle sanctuary. The government has offered you $1,000,000 over the current value of the business to sell your business, the building, and the land. The offer is good only for the next year (365 days} because after that, they'll put the sanctuary in their second-choice location. How, if at all, does this change your current business situation? Explain below and make any changes (if necessary) to your graph in Part C, labeling any changes with the subscript \"\".D
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