AP Microeconomics FRQ - Resource Markets Kristal's Cakes is a bakery that produces coffee cupcakes. If has fixed costs of $1000 per month and labor is the only variable cost. Kristal can sell all the cakes it can produce for $10 each and hires workers at a wage rate of $200/day. Use the data to answer the questions that follow. Workers hired Total Product 1 50 2 90 3 125 4 150 5 165 6 175 7 180 1. In what kind of competitive market does Kristal sell her coffee cakes? How do you know? 2. In what kind of competitive market does Kristal hire her workers? How do you know? 3. If Kristal wants to be a profit-maximizing producer, how many workers would she hire? Explain why this is the profit-maximizing number of workers. 4. Given your answer in #3, would Kristal be earning economic profit? If so, how much would her profit be? If not, would you advise her to remain open or shut down? Why? 5. Now suppose that through word-of-mouth advertising, Kristal's coffee cakes have become wildly popular increasing the price to $15 each. Now how many workers would she employ? What would her profit or loss be