You are the manager of a 24-hour copy shop that is closed on Sundays. You lease a building for $2,000 per month and hire three employees who each work eight-hour shifts at a wage of $10.00 per hour. The markets for labor and office space are tight in your area. To acquire the lease and hire workers, you signed contracts requiring you to give 12 months advance notice before abandoning your lease or laying off workers (if you fail to comply, the contracts force you to fully compensate your landlord and workers for the income they otherwise would have earned over the 12-month period). Paper costs you $.02 per sheet. You currently sell 600,000 color copies per year at a price of $.12 per copy and 1,000,000 black and white copies per year at a price of $.06 per copy. Color copiers require new toner cartridges every 100,000 copies and black and white copiers require new toner cartridges every 200,000 copies. Color toner cartridges are $200 each and black and white toner cartridges are $100 each. Because of your high volume, each of your two copiers has a useful life of only one year. 

You just received a call from an employee who informs you that your color copier just broke down. The good news is that your black and white copier is brand-new; the bad news is that a new color copier will cost $45,000. Assume that customers who want color copies are unwilling to substitute black and white copies.

24-Hour Copy Shop - Question #1

Should you purchase the new color copier? Carefully explain your answer using marginal analysis. (6)

24-Hour Copy Shop - Question #2

What is the most you would be willing to pay for the new color copier? Carefully explain your answer using marginal analysis. (2)