Final Exam

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1. Backers of the B-2 bomber have argued that it would be wasteful for Congress to stop their manufacture because so much has already been spent to develop the B-2. Advise Congress on how to deal with this argument. Answer: This is the case of huge fixed cost involved in production, so the argument goes like this, if they will stop manufacturing, there will be a huge loss for them including the total fixed cost and sunk cost, which cannot be recovered. I would suggest them to check there total revenue and their total variable cost, if the firm is able to cover its total variable cost and even a small portion of fixed cost, it would be better to run the business. On the other hand if firm is not even able to cover its total variable cost…show more content…
Since the prices are higher in dinner menu, the elasticity of demand for dinner will be comparatively less elastic than the elasticity of demand for lunch menu. Since when there is a difference in the elasticity of demand in two markets say lunch and dinner market, a firm can charge higher prices in the market where the elasticity is relatively less elastic. Same has happened in the prices of Berghoff restaurant. The other reason could be the higher cost for preparing the dinner than the lunch food stuff. 3. Refer back to the prior question about the Berghoff and consider the information presented there. Assume that you are told that the entire difference in price is related to higher cost during the dinner period. In a sentence, how might you explain the higher cost? Answer: Since the timings for producing both the products are different, there must be a difference in cost involved which resulted in the difference in price of the two timings. It is quite possible that the cooks and the chefs who are available for preparing dinner are charging more for preparing dinner cost. There may be the difference in the technique of production in preparing food, for example in the morning solar gas can be used to prepare food, whereas in the night time they had to use
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