Question 2 (a) Bread & Tart is a famous bakery shop. This company is planning for opening a new shop in Tsim Sha Tsui. For this new shop, the decoration cost is $100,000. The cost of equipment is $60,000. Every month, the purchase costs of flour and related raw materials are estimated at $30,000. The electricity and utility expenses are $4,000 per month. The monthly rent of the shop is $25,000. There are two shop-keepers. The annual salary of each shop-keeper is $140,000. The estimate monthly sales revenue is $150,000 After selecting a vacant shop, it is found that the sewage system of this venue is deteriorated significantly. The company needs to spend $30,000 to re-instal the sewage system. Moreover, due to the launch of new model of the equipment, the resale value of the equipment bought drops to $35,000 after a year. Moreover, the manager of Bread and Tart is considering whether the company should use this new shop to start a new business selling unique brands of coffee and get the estimated annual return of this new business at $960,000. Calculate the annual economic profit of running this new shop of Bread & Tart. Show all items and workings in your calculation using this format "Sxxx xxx (total revenue)- Sxxx.xxx (name of the expense item) xxx.xxX12 (name of the expense iteml etc. Suggest whether Bread & Tart should use this new shop to sell their original products, i.e bread and tart or to sell coffee based on your calculation and findings. (7 marks) MagicDrug is the only permitted producer in Cityland selling sleeping pills (i) (ii) Suppose MagicDrug is making positive economic profit. llustrate this situation (b) Explain the type of market structure MagicDrug belongs to (2 mark) with a diagram. Explain how MagicDrug determines its profit-maximising output, price, and the total profit theoretically. (6 marks) (ii) Suppose the rent of MagicDrug factory will increase. This will turn the amount of profit earned by MagicDrug to zero. Illustrate this situation in the same diagram of part (b) (ii). How does it affect the profit-maximising output and pri MagicDrug? Explain briefly 5 marks) Question 2 (a) Bread & Tart is a famous bakery shop. This company is planning for opening a new shop in Tsim Sha Tsui. For this new shop, the decoration cost is $100,000. The cost of equipment is $60,000. Every month, the purchase costs of flour and related raw materials are estimated at $30,000. The electricity and utility expenses are $4,000 per month. The monthly rent of the shop is $25,000. There are two shop-keepers. The annual salary of each shop-keeper is $140,000. The estimate monthly sales revenue is $150,000 After selecting a vacant shop, it is found that the sewage system of this venue is deteriorated significantly. The company needs to spend $30,000 to re-instal the sewage system. Moreover, due to the launch of new model of the equipment, the resale value of the equipment bought drops to $35,000 after a year. Moreover, the manager of Bread and Tart is considering whether the company should use this new shop to start a new business selling unique brands of coffee and get the estimated annual return of this new business at $960,000. Calculate the annual economic profit of running this new shop of Bread & Tart. Show all items and workings in your calculation using this format "Sxxx xxx (total revenue)- Sxxx.xxx (name of the expense item) xxx.xxX12 (name of the expense iteml etc. Suggest whether Bread & Tart should use this new shop to sell their original products, i.e bread and tart or to sell coffee based on your calculation and findings. (7 marks) MagicDrug is the only permitted producer in Cityland selling sleeping pills (i) (ii) Suppose MagicDrug is making positive economic profit. llustrate this situation (b) Explain the type of market structure MagicDrug belongs to (2 mark) with a diagram. Explain how MagicDrug determines its profit-maximising output, price, and the total profit theoretically. (6 marks) (ii) Suppose the rent of MagicDrug factory will increase. This will turn the amount of profit earned by MagicDrug to zero. Illustrate this situation in the same diagram of part (b) (ii). How does it affect the profit-maximising output and pri MagicDrug? Explain briefly 5 marks)
