Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sunshine Bakery is one of the many shops making and selling croissants (a perfectly competitive market) in Country X with a fixed cost of $5,000.

image text in transcribed
Sunshine Bakery is one of the many shops making and selling croissants (a perfectly competitive market) in Country X with a fixed cost of $5,000. Table 1 shows the cost schedule of the shop and Table 2 shows the demand and supply schedule of the market for croissant. Production Total Variable Price Quantity Quantity Output Cost ($ per Demanded Supplied (Piece) ($) croissant) (Piece) (Piece) 1,000 6,000 3 7,000,000 1,000,000 2,000 10,000 un 6,000,000 2,500,000 3,000 14,500 6 5,500,000 3,500,000 4,000 20,000 4,000,000 4,000,000 5,000 27,000 8 3,500,000 5,500,000 6,000 36,000 10 6,500,000 Table 1 - Cost schedule of Sunshine Table 2 - Demand and supply schedule of the Bakery croissant market (a) State the equilibrium condition. Based on the given data in Table 2, what should be the equilibrium price and equilibrium quantity of croissant? (3 marks) (b) Based on the given data in Table 1, construct ONE new table for Sunshine Bakery including the column of quantity and add new columns of total cost, average total cost, average variable cost and marginal cost. Round all figures to one decimal place, if applicable. Quantity Total Cost Average Average Marginal Total Cost Variable Cost Cost (in thousands) ($) ($) ($) ($) (Remarks: Significant mark deduction applies if the table is broken into 2 parts or 2 tables) (6 marks) (c) Based on the given information and your answer in part (a) and (b), what should be the profit- maximizing quantity of Sunshine Bakery? Explain. (3 marks) (d) Use a set of market-firm diagram to illustrate the above circumstances with all relevant key data related to price, quantity, cost and profit (loss) condition. Label them on your graph. No average variable cost (AVC) curve and no explanation is required (7 marks) (e) Suppose recently health research reveals that consumption of croissant increases the risk of diabetes. In view of this, Sunshine Bakery has recorded an economic loss and Sunshine Bakery decided to shut down temporarily. Illustrate this situation in the same market-firm diagram of part (d). No average variable cost (AVC) curve and no explanation is required. (3 marks) (f) Why would Sunshine Bakery decide to shut down temporarily? Explain

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Commerce And Coalitions How Trade Affects Domestic Political Alignments

Authors: Ronald Rogowski

1st Edition

0691219435, 9780691219431

More Books

Students also viewed these Economics questions

Question

4. What means will you use to achieve these values?

Answered: 1 week ago