Question
A new pizza shop, Pizza Hot, opens in New Jitra City. The average price of a medium pizza in New Jitra City is RM10 and
A new pizza shop, Pizza Hot, opens in New Jitra City. The average price of a medium pizza in New Jitra City is RM10 and because of the large number of pizza sellers, this price will not be affected by the new entrant in the market. The owner of Pizza Hot estimates that monthly total costs will be = 2000 + 2 + 0.01 2 where q is the number of pizza.
i) Determine the amount of pizza that should be produced each month to maximize total profit and demonstrate your answer using an appropriate diagram.
ii) Derive the market supply function if there are 50 identically sized pizza shops in New Jitra City.
iii) Calculate the economic profit (loss) earned by Pizza Hot each month in the short run.
iv) Based on your answer in part (iii), does the owner of Pizza Hot should continue or shut down the operation? Explain your answer.
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