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Question 2: You own and operate a cupcake store that is adjacent to a muffin shop; all that sep- arates the two businesses is a wall. Your cost function is C(g) 36-2 +, where q represents the number of cupcakes produced and the 36 represents what the salary you pay your head baker. The muffin shop next door has cost function C(a) 364 where q represents the number of muffins produced and which also employs a head baker at a wage of 36. (a) Which of the cupcake or muffin shop have economies of scale? If so, up to what level of production? b) Suppose you purchased the muffin shop next door which would allow you to fire one of the head bakers. Is this an example of you exploiting economies of scale or economies of scope? Explain.

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