7. How a change in fixed costs affects the profit-maximizing quantity
Manuel owns and operates a hot dog stand in downtown New York City. In order to operate his hot dog stand, regardless of the number of hot dogs sold, Manuel must purchase a permit from the local government in New York City. Manuel's initial profit hill is plotted in green (triangle symbols) on the following graph.
Suppose the price Manuel must pay for a permit decreases by $10 per day.
On the following graph, use the purple diamond symbols to plot Manuel's new profit hill, for 0, 10, 20, 30, 40, 50, 60, and 70 hot dogs, after the decrease in the price of a permit (with all other factors remaining constant).
you can tell that Manuel initially faces a fixed cost of $ per day.
Initially, Manuel's profit-maximizing level of output is hot dogs per day. After the price of a permit falls, Manuel's profit-maximizing level of output is hot dogs per day.