The question
Name: ______________________ Date: ____________ A small bakery's cost table: fixed cost, the profit-maximizing output and the shut-down rule (5 points)
Linden Street Bakery sells every bagel at the market price of $3.20, a price it cannot change. The table shows its total cost of baking bagels each morning. The bakery and its numbers are invented, for practice.
Data
Linden Street Bakery: output and total cost
| Bagels | Total cost ($) |
|---|---|
| 0 | 40 |
| 10 | 60 |
| 20 | 75 |
| 30 | 95 |
| 40 | 120 |
| 50 | 150 |
| 60 | 190 |
(A) Calculate the marginal cost of a bagel when output rises from 20 to 30 bagels. Show your work. [1 point]
(B) Identify the bakery's total fixed cost, and explain how the table shows it. [1 point]
(C(i)) Identify the profit-maximizing number of bagels at the market price of $3.20. [1 point]
(C(ii)) Explain your answer to C(i) using marginal analysis. [1 point]
(D) The market price of bagels falls to $1.60. Explain whether the bakery should keep baking in the short run or shut down, using average variable cost. [1 point]