Sara is a dot.com entrepreneur who has established a Web site at which people can design and buy a sweatshirt. Sara pays $1,000 a week for her Web server and Internet connection. The sweatshirts that her customer's designs are made to order by another firm, and Sara pays this firm $20 a sweatshirt. Sara has no other costs. The table sets out the demand schedule for Sara's sweatshirts.
Price (dollars per sweatshirt) Quantity (sweatshirts per week)
0 100
20 80
40 60
60 40
80 20
100 0
a. Calculate Sara's profit-maximizing output, price, and economic profit.
b. Do you expect other firms to enter the Web sweatshirt business and compete with Sara?
c. What happens to the demand for Sara's sweatshirts in the long run? What happens to Sara's economic profit in the long run?