Question
Smell the Roses is a small flower stand with a total cost of TC = q^2 +10q + 144. In the short run, the recurring
Smell the Roses is a small flower stand with a total cost of TC = q^2 +10q + 144.
In the short run, the recurring fixed cost is entirely sunk.
a) Write the expressions for the MC, AVC and ATC at Smell the Roses.
b) In a diagram, draw the MC, AVC and ATC curves you found in part a). Keep in mind that the MC and AVC curves in this example are
straight lines.
The market for cut flowers is perfectly competitive.
On weekdays, the florist can sell bouquets at a unit price of $40.
c) Should the florist stay open on weekdays?
d) If so, how many bouquets should it sell to maximize profit? Would the florist be profitable on weekdays?
On weekends, the market price of a bouquet drops to $20.
e) Should a typical florist stay open for business?
f) If, so how many bouquets should it sell to maximize profit?
g) Would the florist be profitable on weekends?
Now, suppose that in the short run only a $80 of the total fixed cost is sunk. Hence Smell the Roses' short run total cost is T
CSR = q^2 +10q + 64.
h) In this case, should the florist stay open or shut down on weekends? Clearly explain.
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