Suppose that Tommy Hilfiger's marginal cost of a jacket is a constant $100 and at one of the firm's shops, total fixedcost is $2,000 a day.The profit-maximizing number of jackets sold in this shop is 20 a day.When the shops nearby start to advertise their jackets, this Tommy Hilfiger shop spends $2,000 a day advertisingits jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.What happens to Tommy's markup and its economic profit? Why?Tommy's markupA. rises, falls, or remains unchanged depending on the effect of advertising on demandOB. falls because advertising decreases demandOC. rises because advertising increases demandOD. does not change because advertising is generally ineffectiveSearchIn the short run, Tommy's economic profit**A. is unknown, zeroOB. decreases with advertising, zeroOC. increases with advertising, positiveOD. is unknown, positiveIn the long-run, Tommy's economic profit isNext

Before Advertising begins:Marginal Cost of a jacket = $ 100Total Fixed Cost = $ 2,000 a dayQuantity…

Answered: What happens to Tommy's markup and its…

Business

Economics

What happens to Tommy's markup and its economic profit? Why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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