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The breakfast burrito stand industry in Santa Fe is monopolistically competitive. A typical stand produces and sells 10,000 burritos in the winter season. For that
The breakfast burrito stand industry in Santa Fe is monopolistically competitive. A typical stand produces and sells 10,000 burritos in the winter season. For that stand, the price per burrito is $3.00, the average total cost is $1.00 at the current production level, and the marginal cost is $0.50 at the current production level. (a) Draw a correctly labeled graph of this typical burrito stand under current market conditions, labeling the equilibrium quantity and the equilibrium price with the numbers provided. (b) Calculate the economic profit or loss for the typical burrito stand. (c) On your graph from Part (a), shade in the area of the profit or loss. Now assume that the government imposes a $20,000 lump-sum license fee for the skiing season. (d) What happens to the price and quantity for the typical burrito stand as a result of the license fee? Explain. (e) Show the impact of the license fee on the graph from Part (a) and provide a clear label for anything that changed. (f) What will happen to the number of burrito stands over the course of the season? Explain
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