Suppose that you are the owner of a bakery. The customers who buy the cakes you bake have different tastes x for the chocolate content, with x ranging from 0 to 1. The total number of customers is N = 100 are equally distributed along the [0,1] line. If x is the customer's most preferred chocolate content (location of the customer), and the cakes have chocolate content z, then customer x bears a unit utility cost of $1. Suppose that all customers' reservation price for a slice of a cake is $3. The marginal cost of producing one slice of a cake of any chocolate content is equal to $1. Suppose that you would always like to serve all the customers. a. Your company offers just one type of cake, say regular, with z =1/2 What price will you set for a slice of a cake? b. Suppose that in addition to regular chocolate cake z=1/2 you are also considering offering the high-chocolate variety, that is ZHC = 3/4. What price will you set for the slice of your new cake? If running the high-chocolate production line entails a fixed cost F = 6, will you stick with just the regular cake or choose to introduce the high-chocolate variety as well?

Suppose that you are the owner of a bakery. The customers who buy the cakes you bake have different tastes x for the chocolate content, with x ranging from 0 to 1. The total number of customers is N = 100 are equally distributed along the [0,1] line. If x is the customer's most preferred chocolate content (location of the customer), and the cakes have chocolate content z, then customer x bears a unit utility cost of $1. Suppose that all customers' reservation price for a slice of a cake is $3. The marginal cost of producing one slice of a cake of any chocolate content is equal to $1. Suppose that you would always like to serve all the customers. a. Your company offers just one type of cake, say regular, with z =1/2 What price will you set for a slice of a cake? b. Suppose that in addition to regular chocolate cake z=1/2 you are also considering offering the high-chocolate variety, that is ZHC = 3/4. What price will you set for the slice of your new cake? If running the high-chocolate production line entails a fixed cost F = 6, will you stick with just the regular cake or choose to introduce the high-chocolate variety as well?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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