1. Recall Ima Baker who runs her own bakery specializing in cheese cakes. Consider a month in her life. Every month she
Posted: Thu May 05, 2022 7:37 am
1. Recall Ima Baker who runs her own bakery specializing in
cheese cakes.
Consider a month in her life. Every month she pays $5,000/month in
rent to
PropertiesUnlimitedfor a store-front bakery shop. She also rents a
special oven
for $200/month from GrandRentalStation. Ima has also borrowed money
from
HSBCBankto buy a fax/printer/copier. This fax/printer/copier does
not depreciate
when Ima uses it. Ima took out a loan from HSBCto buy the
super-duper
fax/printer/copier at an interest rate of 5% per month. The machine
cost $1,000 to
purchase. Ima borrowed the entire amount and does not pay back any
principal.
She only pays HSBCinterest every month. Ima also uses her own
garage to store
cream cheese. Her garage is nice and could easily be rented out for
$200/month in
the real estate market. Ima uses cream cheese she buys from Topsand
her own
labor to make her cheese cakes. The table below shows the
relationship between
number of hours Ima works on baking cheese cakes and how many she
can bake.
It also shows the number of pounds of cream cheese Ima must use as
a function of
how many cheese cakes she bakes. Cream cheese sells for $2/pound at
Tops.
The maximum number of cheese cakes she can make a month is 1100.
Ima also
happens to be a financial wizard and knows a lot about corporate
financial
statements. BankofAmericais interested in Ima's expertise and
offers to pay her
$100/hour to review their ledgers and do consults for their legal
battles. She would
get paid $100/hour for each hour of consulting she does instead of
baking.
Suppose the market is perfectly competitive and that the current
market price is $70.04 per cheesecake.
1. What is Ima's profit maximizing quantity?
2. How much accounting profit does she make?
3. How much economic profit does she make?
4. If she wanted to maximize accounting profit instead of economic
profit, would she produce the same amount? Or more? Or less?
6. If market demand at a price of $70.04 is 42,000 cakes, and all
firms are just like Ima's, how many firms are currently in the
market?
7. Is this or is this not a long run equilibrium? Why or why not?
And if not, what would have to happen for the market to get to long
run equilibrium?
Ima's monthly short-run cheese cake production function # of pounds of # of cheese # of Ima's cakes hours baking cream cheese used produced (q) 0 0 0 100 5 20 200 45 300 80 400 125 500 180 600 245 700 320 800 405 900 500 1000 605 1100 02468 10 12 14 16 18 20 22
cheese cakes.
Consider a month in her life. Every month she pays $5,000/month in
rent to
PropertiesUnlimitedfor a store-front bakery shop. She also rents a
special oven
for $200/month from GrandRentalStation. Ima has also borrowed money
from
HSBCBankto buy a fax/printer/copier. This fax/printer/copier does
not depreciate
when Ima uses it. Ima took out a loan from HSBCto buy the
super-duper
fax/printer/copier at an interest rate of 5% per month. The machine
cost $1,000 to
purchase. Ima borrowed the entire amount and does not pay back any
principal.
She only pays HSBCinterest every month. Ima also uses her own
garage to store
cream cheese. Her garage is nice and could easily be rented out for
$200/month in
the real estate market. Ima uses cream cheese she buys from Topsand
her own
labor to make her cheese cakes. The table below shows the
relationship between
number of hours Ima works on baking cheese cakes and how many she
can bake.
It also shows the number of pounds of cream cheese Ima must use as
a function of
how many cheese cakes she bakes. Cream cheese sells for $2/pound at
Tops.
The maximum number of cheese cakes she can make a month is 1100.
Ima also
happens to be a financial wizard and knows a lot about corporate
financial
statements. BankofAmericais interested in Ima's expertise and
offers to pay her
$100/hour to review their ledgers and do consults for their legal
battles. She would
get paid $100/hour for each hour of consulting she does instead of
baking.
- 1 Recall Ima Baker Who Runs Her Own Bakery Specializing In Cheese Cakes Consider A Month In Her Life Every Month She 1 (94.51 KiB) Viewed 19 times
market price is $70.04 per cheesecake.
1. What is Ima's profit maximizing quantity?
2. How much accounting profit does she make?
3. How much economic profit does she make?
4. If she wanted to maximize accounting profit instead of economic
profit, would she produce the same amount? Or more? Or less?
6. If market demand at a price of $70.04 is 42,000 cakes, and all
firms are just like Ima's, how many firms are currently in the
market?
7. Is this or is this not a long run equilibrium? Why or why not?
And if not, what would have to happen for the market to get to long
run equilibrium?
Ima's monthly short-run cheese cake production function # of pounds of # of cheese # of Ima's cakes hours baking cream cheese used produced (q) 0 0 0 100 5 20 200 45 300 80 400 125 500 180 600 245 700 320 800 405 900 500 1000 605 1100 02468 10 12 14 16 18 20 22