You are interested in opening a new bakery in town. You are considering locations, and combinations of inputs to determine whether you should open, if you would be successful, and where you should open if you go forward with the bakery.

You have secured the opportunity of a $200,000 business loan and plan to invest $25,000 of your own money if you are to move forward with opening the bakery.

You plan to be open 6 days per week.

Business Loan repayment: $7,555/month for 3 years if you use all $200,000, if you use less than $200,000, the monthly payment is ((amount borrowed*0.12*3) + amount borrowed) / 36.

Legal Fees: $200/month

Insurance: $500/month

Accounting Fees: $300/month

Bakery ovens, one time cost: $10,000 (can produce 200 units/day)

Mixers, one time cost: $2,000 (can produce 60 units of dough, twice per day) Shelving, one time cost: $300 (can hold 50 units)

Refrigerator, one time cost: $2,000 Storage, one time cost: $1,500 Construction cost, one time cost: $30,000 Incorporation fees, one time cost: $1000

Employee: $400/week (employee 1 can make up to 50 units per day, employee 2 can make up to 100 units, employee 3 can make up to 70 units, each subsequent employee can make 10 units less than the previous employee)

Raw Materials: $1.50/unit

Location 1:

$1,700/month

Room for: 1 oven, five shelves, one refrigerator, one storage, and five employees.

Demand: 50 units at $8, 100 units at $7, 150 units at $6, 200 units at $5, 250 units at $4, 300 units at $3, 350 units at $2, 400 units at $1

Question:

1. Use the information above to create production functions for the hypothetical bakeryatallfourlocations. Settheproductionfunctionstodetermineweeklyor monthly production (assume that one month is equal to four weeks).

2. Calculate ATC, AFC, AVC.

3. Calculate MC based on the production function with each row representing one additional worker hired. Remember the workers maximum output is indicated in the Employee description but may be unable to produce their maximum output if some other item (shelving, ovens, etc.) limits their ability to make their maximum.

1. Use the information above to create production functions for the hypothetical bakery at all four locations. Set the production functions to determine weekly or monthly production (assume that one month is equal to four weeks). 2. Calculate ATC, AFC, AVC. 3. Calculate MC based on the production function with each row representing one additional worker hired. Remember the worker's maximum output is indicated in the Employee description but may be unable to produce their maximum output if some other item (shelving, ovens, etc.) limits their ability to make their maximum. You are interested in opening a new bakery in town. You are considering locations, and combinations of inputs to determine whether you should open, if you would be successful. and where you should open if you go forward with the bakery. You have secured the opportunity of a $200,000 business loan and plan to invest $25,000 of your own money if you are to move forward with opening the bakery You plan to be open 6 days per week. Business Loan repayment: $7,555/month for 3 years if you use all $200,000, if you use less than $200,000, the monthly payment is (amount borrowed *0.12*3) + amount borrowed) 36. Legal Fees: $200/month Insurance: $500/month Accounting Fees: $300/month Bakery ovens, one time cost: $10,000 (can produce 200 units/day) Mixers, one time cost: $2,000 (can produce 60 units of dough, twice per day) Shelving, one time cost: $300 (can hold 50 units) Refrigerator, one time cost: $2,000 Storage, one time cost: $1,500 Construction cost, one time cost: $30,000 Incorporation fees, one time cost: $1000 Employee: $400/week (employee I can make up to 50 units per day, employee 2 can make up to 100 units, employee 3 can make up to 70 units, each subsequent employee can make 10 units less than the previous employee) Raw Materials: $1.50/unit Location 1: $1,700/month Room for: 1 oven, five shelves, one refrigerator, one storage and five employees. Demand: 50 units at $8, 100 units at $7. 150 units at $6, 200 units at $5, 250 units at $4. 300 units at $3,350 units at $2,400 units at $1