The increase in costs and resulting reduction in sales will lead to a reduction in profit, even though price rose too. The graph above illustrates this by the change from the green shaded area (before costs rose) to the blue striped area (after profits rose).

15. Due to the increase in the cost of fake butter flavoring and yellow food coloring the theater will experience:

  1. an increase in profits from popcorn sales because the demand for popcorn shifted out. Presumably when people make the decision to purchase popcorn they don't care about the cost of individual ingredients (though they may care what those ingredients are) they simply care about the total price of a tub of popcorn drenched in artificial ingredients. Thus, the demand for popcorn wouldn't change (though quantity demanded does as price changes).
  2. an increase in profits from popcorn sales because the demand for popcorn shifted back. A reduction in demand would not increase profits. Presumably when people make the decision to purchase popcorn they don't care about the cost of individual ingredients (though they may care what those ingredients are) they simply care about the total price of a tub of popcorn drenched in artificial ingredients. Thus, the demand for popcorn wouldn't change (though quantity demanded does as price changes).
  3. a reduction in profits from popcorn sales because fixed costs rose. Fake butter flavoring and yellow food coloring are clearly variable inputs since the theater only uses them when it makes more popcorn (we hope). So, an increase in their cost is an increase in the cost of a variable input.
  4. a reduction in profits from popcorn sales because variable costs rose.
  5. a reduction in profits from popcorn sales because the demand for popcorn shifted back. Presumably when people make the decision to purchase popcorn they don't care about the cost of individual ingredients (though they may care what those ingredients are) they simply care about the total price of a tub of popcorn drenched in artificial ingredients. Thus, the demand for popcorn wouldn't change (though quantity demanded does as price changes).
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