It is welcome to answer all the questions, if you cannot then please just ansewer the part (d) and part (e), thanks so much! The formular sheet was provided as well, whcih might get help.
QUESTION 1 James mainly sells confectionery items, newspapers, magazines and cigarettes in his convenience store. Noting his small business is not thriving, he thought of selling hot pies and rolls too. Suppose the total cost function for rolls and pies is, TC=800+530, Q: Ql'l'Qz where (21 and 02 denote the quantities of rolls and pies respectilly. If P1 and P2 denote the corresponding prices, then the inverse demand equations are: 01:73 Plad0.5Q2=100 P2 REQUIRED: a) If James decides to charge the same price for rolls and pies per day (that is, P1 = P2), how many of rolls and pies in total should he make in order to maximize the prot of a particular day? b) If James decides to charge different prices as above for rolls and pies per day (that is, P1 4': P2), how many of rolls and pies should he make in order to maximize the prot of a particular day? c) Which of the above options (a) or (b) is more profitable? Provide the rationale for your answer. d) If James decides to make a total of 51rolls and pies per day and charges different prices as above (that is, P1 #5 P2 ), how many of rolls and pies each should he make in order to maximize the prot of a particular day? Estimate the increase in maximum prot which results when the total number of rolls and pies per day (51) is increased to 52 [note: assume second-order conditions are satised e) The COVlD-19 pandemic saw the lockdown of many cities to reduce the spread of the virus. This unprecedented move can be viewed as a negative demand shock. Explain the impact of the lockdown of the city where James' convenience store is located on the demand lnctions of rolls and pies (half a page maximum). 12. Important economic definitions . Total Revenue (TR) = PxQ . Total Cost (TC) = Fixed cost (FC) + Variable cost (VC) . Average Cost (AC) = TC . Average Revenue (AR) = TR Q . Marginal Cost (MC) = d(TC) dQ . Marginal Revenue (MR) = d(TR) dQ . Profit = TR - TC . At the break-even, TR = TC or Profit = 0 . At the equilibrium, Pa = Ps = P and Qa = Qs = Q . If price discrimination is not permitted, then P1 = P2 = P. The overall demand is the sum of the two separate demands: Q = Q1 + Q2
