a. Can you say what happens to the price of a Tommy Hilfiger jacket? Why or why
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b. Can you say what happens to Tommy’s markup? Why or why not?
c. Can you say what happens to Tommy’s economic profit? Why or why not?
Suppose that Tommy Hilfiger’s marginal cost of a jacket is a constant $100 and the total fixed cost at one of its stores is $2,000 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets. The Tommy Hilfiger store now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.
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a If the advertising has decreased the demand and made ...View the full answer
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