Question

Homework 2. Demand and Consumer Choice 1. A comme restaurants rcial bakery faces the following daily firm-level demand, supplying its cakes to the local area 7 60 100 145 a) Suppose, currently the owner thinks that a fair price for a cake is $20 and the bakery can produce and If not, how sell 145 cakes at this price every day. At the end of the day will all cakes be sold? many cakes will be sold? b) How many cakes will be bought at the price of $15?. at 7? c) If the bakery wanted to maximize its revenue (R-p*Qs, price times quantity demanded), which of the three prices ($20, $15, or $7) will allow it to do so? Provide calculations of the revenue below. What recommendation(s) could you give to the bakery if they want to sell 145 cakes per day and charge $20 per cake? d) e) Provide 2 specific examples of demand changes (increase, decrease) for such business as a bakery. Indicate the applicable demand shifter, and tell whether your example would be an increase or a decrease in demand.

Answer 1

Answer to option (a) - (d)

If the owner thinks that the fair price for a cake is $20 and wants to sell 145 cakes every day at $20, then at the end of the day all cakes won�t be sold. Because, if the owner charged $20/cake, at that price only 60 cakes are demanded. So, at $20/cake, the owner will be able to sell 60 cakes. At the price of $15, 100 cakes will be demanded on bought by customers. At $7/cake, 145 cakes will be bought by consumers. So, if the bakery wants to maximize its revenue, then it should charge $15 per cake. If the bakery wants to sell 145 cakes per day and charge $20 per cake, then it should increase demand for its bakery. This can be done by promoting their bakery and also by offering and complementary product that can be used with cake at a lower price. This will uparrow demand for cake as well, shifting