Question

Suppose a vendor sells miniature Eiffel Towers to tourists for $9 each and the marginal cost of producing the trinkets is MC = 2q + 3. a) How many miniature Eiffel Towers will the vendor produce? b) What is the vendor’s producer surplus at this output level? c) As you sip your chocolat chaud at a nearby café, you wonder about this vendor’s profitability. In accented but very good French you ask about the costs. The vendor tells you that fixed cost = $3.00 and average variable costs are, 3 + q. Is this vendor earning negative, zero, or positive economic profit in the short run? d) The vendor now recognizes that you are knowledge about economics. As the vendor wraps your miniature Eiffel Tower he/she/they asks you for advice about the long run profit outlook in the competitive miniature Eiffel Tower market. How do you respond?

Answer 1

a) The vendor will produce 3 miniature Eiffel Towers. b) The vendor's producer surplus at this output level is $9. c) The vendor is earning a positive economic profit in the short run. d) The vendor should consider market competitiveness and demand to evaluate the long run profit outlook.

Step-by-step explanation:

a) To determine the quantity of miniature Eiffel Towers the vendor will produce, we set the marginal cost (MC) equal to the price. In this case, MC = 2q + 3 and the price is $9. So, 2q + 3 = 9. Solving for q, we get q = 3.

b) The vendor's producer surplus at this output level is the area between the supply curve and the price line, up to the quantity produced. In this case, the producer surplus is equal to 1/2 * (9 - 3) * 3 = $9.

c) To determine the vendor's economic profit in the short run, we need to calculate total revenue (TR) and total cost (TC). TR is the quantity produced (q) multiplied by the price ($9), so TR = q * 9. TC consists of fixed cost (FC) and variable cost (VC). FC is given as $3 and VC is 3 + q. Therefore, TC = FC + VC = 3 + 3 + q = 6 + q. Economic profit is equal to TR - TC. If q = 3, then TR - TC = 3 * 9 - (6 + 3) = $18 - $9 = $9. So the vendor is earning a positive economic profit in the short run.

d) In the long run, the vendor should consider the competitiveness of the miniature Eiffel Tower market, including the number of competitors and the ease of entry. They should also assess the demand for the product and potential changes in costs. Based on these factors, they can determine if the market is profitable and if they should continue operating in the long run.

Answer 2

Answer: a

Step-by-step explanation:

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