1)Here is the solution for the cost table for the cake-maker from last week: Number of Cakes 0 1 2 3 4 VC 0 30 50 75 105 MC ΝΑ 30 20 25 30 AVC ΝΑ 30 25 25 26.25 FC 50 50 50 50 50 TC 50 80 100 125 155 ATC ΝΑ 80 50 41.6666667 38.75 Suppose the cake-maker is a purely competitive business charging $20/cake. What is the optimal number of cakes to sell? Support your answer with the following: a) First, set up a table calculating the profit at each number of cakes. b) Also, explain your answer using the 'shut-down vs. operate' rules of thumb covered this week. (i.e, compare Price to AVC and ATC, or revenues to variable and total costs) c) Suppose the price of cakes magically rises to $40. Is there an optimal number of cakes to sell now? How many? d) The cake-maker thinks, "I should actively try charging a different price for my cakes". Based on the assumptions in the problem, how effective is this strategy likely to be?

1)Here is the solution for the cost table for the cake-maker from last week: Number of Cakes 0 1 2 3 4 VC 0 30 50 75 105 MC ΝΑ 30 20 25 30 AVC ΝΑ 30 25 25 26.25 FC 50 50 50 50 50 TC 50 80 100 125 155 ATC ΝΑ 80 50 41.6666667 38.75 Suppose the cake-maker is a purely competitive business charging $20/cake. What is the optimal number of cakes to sell? Support your answer with the following: a) First, set up a table calculating the profit at each number of cakes. b) Also, explain your answer using the 'shut-down vs. operate' rules of thumb covered this week. (i.e, compare Price to AVC and ATC, or revenues to variable and total costs) c) Suppose the price of cakes magically rises to $40. Is there an optimal number of cakes to sell now? How many? d) The cake-maker thinks, "I should actively try charging a different price for my cakes". Based on the assumptions in the problem, how effective is this strategy likely to be?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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