Question

QUESTION 30 Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. Refer to the information in Scenario 8.1. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be: zero in the long run, and Sizzle will be out of business. higher than Sizzle's by $500,000 yearly. the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent. higher than Sizzle's by just less than $500,000 yearly the same as Sizzle's because Sizzle will move to a more advantageous location in order to compete.

Answer 1

Refer to the information in Scenario 8.1, if Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be: higher than Sizzle's by $500,000 yearly.

Because Fizzle is farther upstream and gets cleaner water, so its cost of purifying water for use in soft drinks is lower than that of Sizzle's by $500,000 yearly. Both are selling the same output at the same price. So the profit will be nearly same. As the cost of purifying water for Fizzle is lower than that of Sizzle by $500,000 yearly, no doubt Fizzle's profit will be higher than Sizzle's by $500,000 yearly. Fizzle gets extra advantage of $500,000 yearly which is a gain for him.