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?