Imagine that you have invested $1 million in a McDonald's franchise restaurant. The investment includes expenses for land, buildings, and franchise fees.
- What are some of the explicit costs and implicit costs of this franchise operation?
- How do you expect the output of your franchise to change as you hire more labor? Do you expect to see increasing marginal returns, decreasing marginal returns, or constant returns to labor? Explain.
- Suppose an increase in the minimum wage has raised your franchise's labor costs. How do you respond to the higher labor costs? How will the higher labor costs affect your short-run cost curve, long-run average product curve, and average cost curve?