VannasBrew produces raspberry lemonade and sells it competitively. To secure its activity, VannasBrew must rent a factory space at the cost of 15 000 SEK/month. The production of one bottle of raspberry lemonade costs the firm 32 SEK. As long as its monthly production is less than 40 000 bottles a month,
VannasBrew produces raspberry lemonade and sells it competitively. To secure its activity, VannasBrew must rent a factory space at the cost of 15 000 SEK/month. The production of one bottle of raspberry lemonade costs the firm 32 SEK. As long as its monthly production is less than 40 000 bottles a month,
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:VannasBrew produces raspberry lemonade
and sells it competitively. To secure its activity,
VannasBrew must rent a factory space at the
cost of 15 00O SEK/month. The production of
one bottle of raspberry lemonade costs the
firm 32 SEK. As long as its monthly production
is less than 40 000 bottles a month,
VannasBrew can store its output on its own
premises before it is shipped to the stores. If
the production exceeds 40 000 bottles the
company can rent additional storage at the
cost of 2 SEK/bottle per month.
(a) Describe the firm's average fixed cost,
average variable cost, average cost, and its
marginal cost.
(b) Assume the current market price for a
bottle of raspberry lemonade is 33 SEK/bottle.
Explain how much the firm should produce in
order to maximise its profits. Calculate the
profits of the firm.
(c) VannasBrew could increase its own storage
capacity to 60 000. This means that if its
production exceeds 60 000 the firm will rent
additional storage capacity at the cost of 2
SEK/bottle, whereas if the production is below
60 000 the firm does not need additional
storage space. The market price for the
raspberry lemonade and all other costs are
left unchanged. Is the firm prepared to pay an
additional 15 000 SEK/month to increase its
storage capacity at the current market price of
33 SEK/bottle?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education