Author Question: Borem is a big fan of wine from Trader Moe's. Moe's sells a high-quality expensive wine and a cheap ... (Read 123 times)

haleyc112 · **on:** Jul 1, 2018

Borem is a big fan of wine from Trader Moe's. Moe's sells a high-quality expensive wine and a cheap low-quality wine. Borem buys both types but tends to buy more bottles of the cheaper wine.

Borem later moves to a new city where he must drive a long distance to get his wine at Trader Moe's. Assuming the income effect is small, and that Borem still buys his wine from Moe's, how is he going to change his relative consumption of the expensive and cheap wines?

Question 2

A small business owner earns 50,000 in revenue annually. The explicit annual costs equal 30,000. The owner could work for someone else and earn 25,000 annually. The owner's business profit is ________ and the economic profit is ________.

A) 20,000, 20,000
B) 20,000, -5,000
C) 25,000, -5,000
D) 25,000, 20,000

pocatato · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

The driving represents a fixed cost added to the price of each wine. As a result of the fixed cost, the relative prices have changed, making the expensive wine relatively cheaper than before. He will thus buy more of the expensive wine and less of the cheaper wine.

Answer to Question 2

B