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E202PracticeExam2.11

# E202PracticeExam2.11 - restaurants figure out and copy the...

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incentive to leave a factory job would no longer exist, because cotton farmers would again be making zero economic profit. b. Who would benefit from the program in the long run? How much would they gain each year? Answer : Landowners would reap the long-term benefits of the scheme. Their income would rise by \$40,000/yr. per 120-acre plot. 9. Louisa, a renowned chef, owns one of the 1,000 spaghetti restaurants in Sicily. Each restaurant serves 100 plates of spaghetti a night at \$5 per plate. Louisa wants to develop the recipe for a sauce that is so tasty that everyone would pay \$10 per plate for her spaghetti. a. What is the most cost Louisa would be willing to endure if after one day all the other
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Unformatted text preview: restaurants figure out and copy the recipe for her new sauce? Answer : The most Louisa would be willing to pay in experimental costs is \$500,000. She could charge all 100,000 patrons \$5 more, but only for one night. After the first night, other producers would figure out the recipe and compete the price back down to \$5 per plate. b. If it took the others one month to copy? Answer : Louisa would be willing to pay up to \$15 million dollars (\$500,000/day) (30 days/ month). She could charge an additional \$5 per meal each night for a month before the other producers copy her recipe....
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