Suppose Gus operates a small chicken restaurant in a perfectly competitive industry. His variable costs represent the costs of acquiring food and can be expressed as TVC(Q)=Q^2−(1/2)Q. Because his restaurant is in a dangerous neighborhood, he must pay a security officer to guard the restaurant whenever it opens. This officer’s wages are $27. He also must refrigerate his food, and refrigeration costs $5 and is independent of the amount of food (inputs) he purchases on a specific day. Finally, regardless of whether he operates, he is contractually obligated to pay rent for his restaurant, which costs $20.
(a) What is Gus’s sunk fixed costs? What are Gus’s non-sunk fixed costs?
(b) Suppose the market price of chicken is $15.50. How much chicken will Gus produce?
(c) Suppose the market price of chicken is $5.50. How much chicken will Gus produce?
Suppose Gus operates a small chicken restaurant in a perfectly competitive industry. His variable costs represent the costs of acquiring food and can be expressed as TVC(Q)=Q^2−(1/2)Q. Because his restaurant is in a dangerous neighborhood, he must pay a security officer to guard the restaurant whenever it opens. This officer’s wages are $27. He also must refrigerate his food, and refrigeration costs $5 and is independent of the amount of food (inputs) he purchases on a specific day. Finally, regardless of whether he operates, he is contractually obligated to pay rent for his restaurant, which costs $20.
(a) What is Gus’s sunk fixed costs? What are Gus’s non-sunk fixed costs?
(b) Suppose the market price of chicken is $15.50. How much chicken will Gus produce?
(c) Suppose the market price of chicken is $5.50. How much chicken will Gus produce?
