A firm is considering entering the competitive market of selling coffee at USC. The firm pays a fixed cost of $2000 to enter the market. There is a 50% chance that the coffee is loved by the students and the demand curve for coffee will equal Q = 500-10*P where Q is quantity and P is price.

A firm is considering entering the competitive market of selling coffee at USC. The firm pays a fixed cost of $2000 to enter the market. There is a 50% chance that the coffee is loved by the students and the demand curve for coffee will equal Q = 500-10*P where Q is quantity and P is price.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2.
A firm is considering entering the competitive market of selling coffee at USC. The firm pays a
fixed cost of $2000 to enter the market. There is a 50% chance that the coffee is loved by the
students and the demand curve for coffee will equal Q = 500-10*P where Q is quantity and P
is price.
There is a 50% chance that demand is 0 because nobody likes the coffee.
If it costs 5 dollars to make a cup of your coffee at USC, use Microsoft Excel to calculate your
expected profits from entering this market.
In Excel, use the following columns, Q Market Price Revenue =P*Q
and Cost, profit = revenue-cost.
"
Will the firm enter this local market? What will be the price of coffee charged?

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