Please follow the instruction carefully . Please use the structure given and all your professional knowledge in microeconomics. This is a. essay discussing short run and long run condition cost, shut down point, marginal cost, profit, firm and market, and etc. 1) Explain the factors that Jim should consider when deciding whether to close his business. 2) Discuss the differences between accounting profit, economic profit, and producer surplus, and tell Jim what he should be concerned about in the short and long run. 3) Discuss the outlook for the industry in the long run and how this should shape Jim’s business decisions. Premise The date is March 12, 2020. Sophie Grégoire Trudeau has tested positive for Covid-19. All publicly funded schools are closed, and Toronto will soon announce a lockdown or stay-at-home order. Worst of all for Canada, the National Hockey League has suspended its season indefinitely. Scenario Jim Horton (the fictional distant cousin of Tim Horton) owns a small restaurant in Toronto. He is concerned about how the pandemic will affect his restaurant, “Jim Hor- tons,” and does not want to waste his family’s fortune by staying in business longer than he ought to. Next week, Jim is going to meet with the rest of the Horton family and will need to explain his plans for guiding his restaurant through the pandemic—or closing forever. Unfortunately, Jim wasted his early 20s unsuccessfully training for the Olympic curling team and did not finish ECO200 at the University of Toronto. To prepare for his meeting, Jim has hired a consultant from ECO200—you—to use the tools from class (chapters 6-8, mostly) to help him plan for the restaurant’s future. ECO200 Page 3 Below, Jim explains what his concerns are and how you might help him. You do not have to answer each question, and you can discuss topics not explicitly addressed below. Just make sure to focus on how the lessons that we have learned in class can help him during these difficult times. 1 Sink or Swim? (30 points) Covid-19 is terrible for my business! Customers are too afraid to (or are not allowed to) come to the restaurant. Most of my customers work nearby and come in for lunch, but now they are working from home. At this rate, I expect to lose money until customers go back to the office. I hate to admit this, but I am thinking about closing the restaurant, either temporarily or permanently. Some people on the news insist that everything will go back to normal in a few weeks, but others are concerned that the pandemic could last for years! Taking into consideration the different outlooks for the duration of the pandemic, how should I make the decision as to whether to stay open or shut down, either temporarily or permanently? What costs should I be taking into account to make my decision? I took a look at your textbook for guidance, but my situation is quite a bit different than the typical example of a restaurant deciding whether to stay open. I know that demand has changed, but what about supply in the market? How have my opportunity costs changed as a result of the pandemic, and how should these changes affect my decision to stay open? Has my production function changed? What about my input costs? There is a lot to consider—please tell me only what you think is most important for me to think about right now! 2 Profit and Producer Surplus (30 points) Other than coffee and donuts, my family only really cares about profit. Before I dropped out of school, I remember my professor talking about different types of profit. Should I care about profit in the short run and/or the long run, and if so, what kind of profit matters? What if the pandemic lasts for years? I also remember the professor mentioning some kind of “producer surplus.” Do you have good news about producer surplus that I can share with my family? Once again, I really want you to think hard about how my opportunity costs have changed as a result of the pandemic, how these changes affect my profit or surplus and, ultimately, my decision to close or stay open. 3 The Industry in the Long Run (30 points) My other distant cousin, Tony, just called me to give me good news! He says that the key to success is to just stay in business and wait for other firms to shut down. After the pandemic ends, there will be fewer firms and less competition, so I will be able to sell my food at even higher prices! Should I follow Tony’s advice? If there are fewer firms in the market, perhaps I can even expand my business, too! There will be plenty of hungry customers, and bigger firms always seem to be more efficient, right? This seems too good to be true. What am I missing? Do you agree with my assessment? At the end of our conversation, I could hear Tony talking about economies of scale and returns to scale. Unfortunately, my cell phone reception was terrible, and I could not make out exactly what he was saying. How do these types of considerations affect my strategy moving forward? (Once again, you don’t need to address every question in this section—just focus on what you think is important). 4 Conclusion (10 points) Drawing from the above aspects of this assignment, summarize the most critical considerations for Jim in a few sentences. Your summary should be concise yet comprehensive enough to summarize the key factors you discussed in previous parts.