Describe the short- and long run supply curves for this market.

ECO Assignment Week 6- The toothbrush manufacturing industry

ECO Assignment Week 6- The toothbrush manufacturing industry

Question

Scenario

The
toothbrush manufacturing industry currently has 50 companies making
toothbrushes. All the companies have fixed rate costs of $16 and average
variable costs as follows:

 

Quantity
(thousands)
Average
Variable Cost
Variable
Cost
Total
Cost
Marginal
Cost
Average
Total Cost
1 $1
2 $2
3 $3
4 $4
5 $5
6 $6

Refer to the scenario above and complete
the table columns to assist in answering the questions below:

  1. If the price for a toothbrush
    is currently $10, what is the total quantity supplied in the market? Explain
    how you determined your answer.
  1. As this market makes the
    transition to its long-run equilibrium, will the price rise or fall? Will the
    quantity demanded rise or fall? Will the quantity supplied by each firm rise or
    fall?
  2. Describe the short- and long
    run supply curves for this market.

Scenario

You are a store manager at Bill’s Bagels. The store sells more than a dozen
types of freshly made bagels and a variety of cream cheeses. They also sell
bagel sandwiches at lunchtime. There is a small eat-in area in the store where
customers can sit. Your boss, Bill Bayer, is worried that a local competitor is
selling more bagels and charging less. He has asked you to review the data and
to examine procedures. He also wants you to write your recommendations to
maximize profits. Your recommendations should be in one to two pages and
include rationale for your recommendations.

Bill’s
Bagels is a competitive firm. The store has the following total cost and total
revenue:

 

Quantity 0 1 2 3 4 5 6 7
Total
Cost
$8 $9 $10 $11 $13 $19 $27 $37
Total
Revenue
$0 $8 $16 $24 $32 $40 $48 $56
Marginal
Cost
$8 $1 $1 $1 $2 $6 $8 $10
Marginal
Revenue
$0 $8 $8 $8 $8 $8 $8 $8

Bill
has four employees. You are the store manager, and you have three part-time
staff members who make bagels and take orders. The store opens at 6:00 a.m.
seven days a week and closes at 4:00 p.m., seven days a week.

Instructions

  1. Read the
    scenario.
  2. Create a
    one- to two-page Word document in which you answer the following questions
    and provide rationale for your recommendations:
  • Describe
    the three general rules for profit maximization for a competitive firm.
    How could you apply these rules to Bill’s Bagels?
  • Calculate
    Bill’s Bagels’ profit-maximizing price and quantity. Explain how you
    determined your answers. Recommend a bagel price and quantity to Bill
    that would maximize profit.
  • Consider
    the strategies of shutting down or exiting the market. Should Bill’s
    Bagels, a profit-maximizing competitive firm, consider shutting down
    and/or exiting the market? Should the store consider another opening and
    closing schedule? Make a recommendation to Bill and explain your
    recommendation.

ECO Assignment Week 6- The toothbrush manufacturing industry


 

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