You own a property on Main Street on which a small, vacant take-out...

You own a property on Main Street on which a small, vacant take-out pizza stand sits.  

There are other vacant take-out pizza stands in the same locale (i.e. Main Street) as well as on the less busy Side Street locale.   From your market analysis, you are confident that the sites will attract the following number of pizza sales each month (based on their locale):

Main Street:  450

Side Street:  300

The market price for pizzas in the city is $7.00.  You know the cost of running and maintaining a pizza stand (paid by the operator of the business of course) is fixed at $900 per month.

Jobs in another industry which pay $200.00 per month are plentiful in the city and therefore $200.00 is the minimum profit after rent operators must achieve in order for them to run a pizza stand. 

Note: If any new assumptions are made, they will continue to be in effect for subsequent questions.

2(c). Seeing how much profit there is to be made in the pizza business (compared to the alternative industry which, as a reminder, pays just $200 per month), would-be pizza stand operators rush to open up new businesses.

With far more be operators in the market than properties available for them, what will the rent for each properties in each of the locales (Main Street and Side Street) eventually stabilize at?  Why?  Show your work with the help of a table.

2(d). A local business owner is interested in converting your Main Street pizza stand site into a tanning salon (at no cost to you).  The cost of operating the tanning salon is just $400.00.  They're are confident they'll attract 80 tanning sessions per month at $25.00 per session. 

Will we see a new tanning salon on your site?  Why or why not?  Show with the help of a table.

2(e). The evening news reports that demand for pizza is surging in your market.  Experts predict that the number of pizzas a Main Street location can sell will double to 900 per month and prices will increase to $10.00 per pizza.

"With monthly profits expected to increase by $5,850 per month, this is a GREAT time to be in the pizza business!" the reporter concludes.

Will the pizza operators at Main Street locations really keep that additional residual profit?  Explain why or why not.  What business is it really a GREAT time to be in? :)

Answer & Explanation
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