Bianca bakes delicious cookies. Her total fixed cost is $40 a day, and her average variable cost is $1 a bag. Few people know about Bianca’s Cookies, and she is maximizing her profit by selling 10 bags a day for $5 a bag. Bianca thinks that if she spends $50 a day on advertising, she can increase her market share and sell 25 bags a day for $5 a bag. If Bianca’s advertising works as she expects, can she increase her economic profit by advertising? If Bianca advertises, will her average total cost increase or decrease at the quantity produced? If Bianca advertises, will she continue to sell her cookies for $5 a bag or will she change her price?
Bianca bakes delicious cookies. Her total fixed cost is $40 a day, and her average variable cost is $1 a bag. Few people know about Bianca’s Cookies, and she is maximizing her profit by selling 10 bags a day for $5 a bag. Bianca thinks that if she spends $50 a day on advertising, she can increase her market share and sell 25 bags a day for $5 a bag. If Bianca’s advertising works as she expects, can she increase her economic profit by advertising? If Bianca advertises, will her average total cost increase or decrease at the quantity produced? If Bianca advertises, will she continue to sell her cookies for $5 a bag or will she change her price?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Bianca bakes delicious cookies. Her total fixed cost is $40 a day, and her average variable cost is $1 a bag. Few people know about Bianca’s Cookies, and she is maximizing her profit by selling 10 bags a day for $5 a bag. Bianca thinks that if she spends $50 a day on advertising, she can increase her market share and sell 25 bags a day for $5 a bag.
- If Bianca’s advertising works as she expects, can she increase her economic profit by advertising?
- If Bianca advertises, will her average total cost increase or decrease at the quantity produced?
- If Bianca advertises, will she continue to sell her cookies for $5 a bag or will she change her price?
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