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Author Question: Shoe-a-holic Cathy started her own line of custom made, hand embellished wedding shoes. She opened ... (Read 112 times)

folubunmi

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on: Jul 1, 2018
Shoe-a-holic Cathy started her own line of custom made, hand embellished wedding shoes. She opened up her own shop paid 2500 in fixed licensing fee. She used about 3000 in raw materials and made 3500 . At the end of the first month, Carly, her sister looked at her financials and told her that she was losing money and should shut down. Cathy is heartbroken. As an economics guru, what would you advise her to do?

Question 2

The Robinson-Patman act
 a. Is a part of the antitrust laws
 b. Makes it illegal to give a price discount on a good sold to another business
  c. Makes it illegal to give a price discount on a good sold to final customers
  d. Both A&B


ilianabrrr

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Reply #1 on: Jul 1, 2018
Answer to Question 1

Carly is considering 2500 in fixed costs as a part of her calculations, which is why she advises Cathy to shut down. However, fixed costs should not be a part of the decision making in this case because they are sunk and no longer avoidable by stopping production. Even if Cathy shuts down, she cannot get any of the 2500 back. On the flip side, she is actually making a profit of 500 (3500-3000 . and therefore should not shut down.

Answer to Question 2

d


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