Throughout the world, the Covid-19 pandemic and government restrictions drastically cut the number of customers at retail shops. The Crown Estate, owner of London's Regent Street, decided to help its retail tenants by revising the rent. Tenants could choose between paying 9% of sales revenue or getting a discount on the contractual fixed rent.

1. How would the shift from the fixed rent to the percentage rent affect the (i) fixed and (ii) variable cost of retail stores? 2. Suppose that retailer A pays the percentage rent, while retailer B pays a fixed rent. (In expected value, the percentage rent equals the fixed rent.) During the next pandemic, explain which retailer would be more likely to shut down in the: (i) short run and (ii) long run.