Suppose That at One of the Talbot's Shops, Marginal Cost

question 217

Multiple Choice

Suppose that at one of the Talbot's shops, marginal cost of a coat is constant at $150, and total fixed cost is $3,000 a day. The shop maximizes its profit by selling 15 coats a day at $500 per coat. Then the shops nearby increase their advertising. The Talbot shop responds by spending $1,500 a day more on advertising its coats. As a result, its profit-maximizing number of coats sold increases to 25 a day at $400 per coat.
-In the scenario above, as a result of increased advertising, Talbot's economic profit:

• A) Decreases by $500.
• B) Increases by $170.
• C) Increases by $750.
• D) Decreases by $100.

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