Lemonade anyone? II Raymond decides to set up a lemonade stand ...

[jessicacav]

Lemonade anyone? II Raymond decides to set up a lemonade stand every weekend for the next four weeks to save up for the latest x-men comic. He has to pay his brother Robert 10 as a one time payment for him to not bully Raymond or drive his customers away. The lemons and sugar cost him 10 (the water is free) and his dad offers to set up his stall for him. He ends up making 15 his first weekend. Frank, his father notices this and advises Raymond to shutdown the stall, while Marie his mother advises him not only to set up the stall next weekend but to increase production even more. Raymond is extremely confused. Who do you think he should listen to?

Question 2

In which of the following cases does the Robinson-Patman act not apply?
 a. There are no cost differences to serving different groups
  b. Discounts are never offered to meet competition
 c. The industry does not engage in promotional allowances
  d. All of the above

[tdewitt]

Answer to Question 1

In this case, his mother is right, he is actually making a profit of 5, since the anti-bullying cost he paid to Robert is fixed and now unavoidable and should not be a part of the calculations. Therefore he should definitely not shut down. In this case the marginal revenue is also above his marginal cost, and thus if he increases production, his profit would increase and hence he should ramp up production.

Answer to Question 2

d

[jessicacav]

TYSM

[Dominic]

Excellent