Bud Owen Operates Bud's Package Store in a Small College

question 94

Essay

Bud Owen operates Bud's Package Store in a small college town. Bud sells six packs of beer for off-premises consumption. Bud has very limited store space and has decided to limit his product line to one brand of beer, choosing to forego the snack food lines that normally accompany his business. Bud's is the only beer retailer physically located within the town limits. He faces considerable competition, however, from sellers located outside of town. Bud regards the market as highly competitive and considers the current $2.50 per six pack selling price to be beyond his control. Bud's total and marginal cost functions are:
TC = 2000 + 0.0005Q²
MC = 0.001Q,
where Q refers to six packs per week. Included in the fixed cost figure is a $750 per week salary for Bud, which he considers to be his opportunity cost.
a. Calculate the profit maximizing output for Bud. What is his profit? Is this an economic profit or an accounting profit?
b. The town council has voted to impose a tax of $.50 per six pack sold in the town, hoping to discourage beer consumption. What impact will the tax have on Bud? Should Bud continue to operate? What impact will the tax have on Bud's out-of-town competitors?

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Definitions:

Introductory Approach

The initial method or strategy used to engage a potential client or customer, introducing the offerings of a business.

Winter Makeup

Winter makeup refers to cosmetic products and styles specifically suited or designed for colder weather conditions, often focusing on moisturization and bold colors.

Customer Benefit Approach

A sales strategy focusing on communicating the advantages and positive outcomes that a customer will gain from a product or service.

Referral

The act of recommending a product, service, or company to someone else, often based on personal experience.