Scenario: You and the other donut shops that just opened in your area are all selling the same basic donuts. Every other shop is selling their donuts for $1.00 per donut. You are now a price taker in a perfectly competitive market where the price of a donut is $1.00. Assume you currently have capacity at your shop to make 50,000 donuts. Quantity Variable Costs Fixed Costs Price Total Costs Total Revenue Profit Marginal Costs 2,000 $2,000 $10,000 $1 3,000 $2,500 $10,000 $1 5,000 $3,500 $10,000 $1 10,000 $4,000 $10,000 $1 15,000 $7,000 $10,000 $1 25,000 $20,000 $10,000 $1 50,000 $80,000 $10,000 $1 Step Two Respond to the following: Based on your work during the Start Your Own Donut Shop assignment, what price did you originally plan to charge per donut? Based on your current quantities and costs, can you sell donuts for $1.00 and still make a profit? Explain your answer using information from the table. What would you charge for donuts, and how would that compare to similar donuts from two local donut shops? Use the prices you found in last week’s activity. How do those compare for plain donuts? If you could charge those prices, what would that do for your donut shop? What is at least one thing you could change about quantity or costs to be able to charge $1.00 per donut?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Scenario: You and the other donut shops that just opened in your area are all selling the same basic donuts. Every other shop is selling their donuts for $1.00 per donut. You are now a price taker in a perfectly competitive market where the price of a donut is $1.00. Assume you currently have capacity at your shop to make 50,000 donuts.

Quantity	Variable Costs	Fixed Costs	Price	Total Costs	Total Revenue	Profit	Marginal Costs
2,000	$2,000	$10,000	$1
3,000	$2,500	$10,000	$1
5,000	$3,500	$10,000	$1
10,000	$4,000	$10,000	$1
15,000	$7,000	$10,000	$1
25,000	$20,000	$10,000	$1
50,000	$80,000	$10,000	$1

Step Two

Respond to the following:

Based on your work during the Start Your Own Donut Shop assignment, what price did you originally plan to charge per donut?
Based on your current quantities and costs, can you sell donuts for $1.00 and still make a profit? Explain your answer using information from the table.
What would you charge for donuts, and how would that compare to similar donuts from two local donut shops? Use the prices you found in last week’s activity. How do those compare for plain donuts? If you could charge those prices, what would that do for your donut shop?
What is at least one thing you could change about quantity or costs to be able to charge $1.00 per donut?

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