1. Backers of the B-2 bomber have argued that it would be wasteful for Congress to stop their manufacture because so much has already been spent to develop the B-2. Advise Congress on how to deal with this argument.
Answer:
This is the case of huge fixed cost involved in production, so the argument goes like this, if they will stop manufacturing, there will be a huge loss for them including the total fixed cost and sunk cost, which cannot be recovered.
I would suggest them to check there total revenue and their total variable cost, if the firm is able to cover its total variable cost and even a small portion of fixed cost, it would be better to run the business. On the other hand if firm is not even able to cover its total variable cost also, it would be wise to shut down the business, because the loss would be equal to the total fixed cost and more in running the business.
2.On a recent trip to Chicago I had an opportunity to eat at the Berghoff Café. This famous restaurant was founded in 1898 by Herman Joseph Berghoff and was still run by the Berghoff family. We entered the restaurant at 3:10 P.M. were escorted to a table and presented with a menu which said, "Saturday Luncheon Menu." Apparently dinner begins at 4:00 P.M. at the Berghoff.
Thinking that the prices were lower than I had remembered for past dinners at the Berghoff, I requested a Saturday dinner menu and compared some prices with the following result. The luncheon menu had prices for Sauerbraten, Weiner $chnitzel, and Johannisberg Riesling by the glass with the following prices respectively $11.75, $12.50, and 5.25. The dinner menu had the same items for $12.95, $13.95 and $5.50 respectively.
Assuming that the service, food, portions etc. are the same at lunch and dinner, how can you explain the price difference between the lunch and dinner menus? (Since this question was originally written, The