Suppose the 50 acre lot on which a firm operates its key production facility is located in an area in which the market value of property has fallen on average 20%. The firm owns this land - there is no mortgage. Land is the resource discussed throughout question #1 but this firm is not in the real estate business.
Does this land constitute a variable or a fixed resource in production? Explain.
If the firm does not sell the land, what impact will this have on the accounting profit the firm reports? (Assume Historic Cost Accounting if necessary. Specifically discuss whether accounting profit will rise, fall, or remain unchanged.) On the firm's economic profit? (Again, discuss whether economic profit will rise, fall, or remain unchanged.) Explain
Illustrate the impact the decrease in the price of land will have on this firm's short run cost curves (short run fixed costs, variable costs, and total costs). Explain your illustration.