Scenario 1 (length: as needed)

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	4
$11	8
$10	12
$9	22
$8	36
$7	70
$6	110
$5	170
$4	350

Scenario 1 Questions

1. What price should the cupcake store charge?
2. If the fixed cost for the firm is $100 per day, how much profit will the firm make in one day?
3. 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)?
4. Is the formula for finding the correct level of output in the middle of page 74 in your text satisfied? (Note there is a typo in the text; the equation should read (P-MC)/P > 1/|e|. )