Scenario 1 (length: as needed)
A cupcake store is located in a mall and is the only cupcake store in that mall. The demand schedule for cupcakes (per dozen) is given in the table below. If the marginal cost to produce a dozen cupcakes is $4 per unit, how many units should the firm produce?
|
Price |
Quantity Purchased |
|
|
|
(Dozen per day) |
|
|
$12 |
3 |
|
|
$11 |
7 |
|
|
$10 |
12 |
|
|
$9 |
20 |
|
|
$8 |
35 |
|
|
$7 |
60 |
|
|
$6 |
100 |
|
|
$5 |
160 |
|
|
$4 |
250 |
|
- What price should the cupcake store charge?
- If the fixed cost for the firm is $100 per day, how much profit will the firm make in one day?
- What is the price elasticity of demand at the optimal price/quantity combination (use the next lower price level as the second point in your calculation)?
- Is the formula for finding the correct level of output (MR greater than MC means that (P-MC)/P is greater than 1/lel) is satisfied?
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