Suppose that Tommy Hilfiger's marginal cost of a jacket is $200 and at one of the firm's shops, total fixed cost is $500 a day. The profit maximizing number of jackets sold in this shop is 30 a day. Then the shops nearby from other retailers start advertising their jackets. The Tommy Hilfiger shop decides to spend $1,000 a day advertising its jackets, and its profit maximizing number of jackets sold jumps to 60 a day.

1. Before advertising: Suppose that the price elasticity of demand is 2. Can you compute the price of a Tommy Hilfiger jacket? And the markup? Please, compute the amount of maximal profits.

2.After advertising: Suppose that the price elasticity of demand equals 6. Can you compute Tommy's economic profit?