Explain how the listed events (a-d) would affect the following at Hilton Hotels.
i. Marginal cost
ii. Average variable cost
iii. Average fixed cost
iv. Average total cost
a. Hilton decides on an across-the-board 5 percent increase in executive salaries.
b. Hilton decides to eliminate all print advertising.
c. Hilton signs a new contract with the Culinary Workers Union that requires the company to increase wages for all its kitchen workers.
d. The federal government starts to levy a $5 room tax on all hotel rooms.
a. Average fixed cost and average total cost will increase; marginal cost and average variable cost will be unaffected.
c. Average fixed cost and average total cost will decrease; marginal cost and average variable cost will be unaffected.
c. Marginal cost, average variable cost and average total cost will increase; average fixed cost will be unaffected.
d. Marginal cost, average variable cost and average total cost will increase; average fixed cost will be unaffected.
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A. decline; lower; decline B. increase; raise; decline C. decline; lower; expand D. decline; raise; decline
When a regulator allows a monopolist to set its price equal to long-run average cost, the regulator is practicing
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A. explains the downward-sloping aggregate demand curve. B. is the positive relationship between consumer spending and the overall price level. C. is not present when wages keep pace with inflation. D. explains how the aggregate demand curve shifts.
Entry of new firms in monopolistically competitive industries can convey a negative externality on producers because firms lose customers and profits from the entry of new competitors. This externality is called the