Otto’s Autos buys cars for resale from the manufacturer at the price of $10,000 per car.
a. Assuming there are no other costs, draw Otto’s total, marginal, and average cost curves
b. Suppose Otto launches a new ad campaign that costs $100,000. On a separate graph show how this affects the total, marginal, and average cost curves.
C. Otto’s little brother and (minority shareholder) business partner, Ace, disagreed with the decision of the new ad campaign. He claims due to the increased expenses allocated towards the ad campaign, the optimal amount of cars produced by Otto’s Autos will decrease. Explain, using your answer from part B., why this claim is false.