Baker premium is a company producing buns in a rented factory with the rental cost of $100 per day. The wage per worker is $40 per day. The table below shows the daily amount of buns produced with a different number of workers employed in the factory
Workers | Buns |
1 |
30 |
2 | 70 |
3 | 130 |
4 | 210 |
5 | 260 |
6 | 300 |
7 | 320 |
8 | 330 |
(a) Compute and explain the minimum price per bun for Baker Premium to operate in the short-run and in the long-run
(b) If the price per bun is $1.50, determine the optimal output and compute the daily profit or loss incurred by Baker Premium. Explain why this ouput is optimal
(c) Consider the utility company in a city which is the only licensed water supplier in the city. The demand for water is given by P = 10 - 0.006Q and the marginal cost of the company is given by MC = 2 + 0.004Q. Identify the optimal output, the market price, the consumer surplus, the producer surplus and the deadweight loss in the water market.
We need to calculate the total cost, marginal cost, average variable cost and Average cost.
In the short run the minimum price must be greater than or equal the minimum average variable cost. In the long run the price must be equal to the minimum average cost.
Refer the attached picture below
In the short run minimum price must be $ 0.76 per bun.
In the long run the minimum price must be $ 1.13 per bun.
B. When the price is $ 1.50 per bun then the Baker must hire 6 labour and the optimal output will be 300 units.
Profit = 300*1.5 - 340 = 450 - 340 = $ 110
The output is optimal since the price is greater than the marginal cost. At this output the MC is 1 and for 7 units of labor the MC is $ 2 thus the firm must not hire 7 units of labor.
C. P = 10 - 0.006Q
MC = 2 + 0.004Q
First determine the Total revenue
TR = PQ = (10 - 0.006Q)Q
Differentiate TR wrt Q
Now equate the MR to MC
P= 10 - 0.006*500 = $ 7 per unit
In case of perfect competition the profit maximization must be set equal to Marginal cost
P = MC
10 - 0.006Q = 2 + 0.004Q
0.006Q + 0.004Q = 10 - 2
0.01Q = 8
Q = 800 units
P = 10 - 0.006*800 = $ 5.2 per unit
Refer the attached picture
Consumer surplus = (1/2)*(10-7)*500 = $ 750
Dead weight loss =(1/2)*(7-4)*(800-500) = $ 450
Producer surplus =(7-4)*500 + (1/2)*(4-2)*500 = $ 2000
I have taken all the precaution in calculation but if still their is any issue kindly contact will be obliged to help.your help mean alot to me kindly help. Thank you.
Baker premium is a company producing buns in a rented factory with the rental cost of $100 per day. The wage per worker...
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