A cupcake store is located in a mall and is the only cupcake store in that mall.
ID: 1098422 • Letter: A
Question
A cupcake store is located in a mall and is the only cupcake store in that mall. The demand schedule for cupcakes (per dozen) is given in the table below. If the marginal cost to produce a dozen cupcakes is $4 per unit, how many units should the firm produce?
Price
Quantity Purchased
(Dozen per day)
$12
3
$11
7
$10
12
$9
20
$8
35
$7
60
$6
100
$5
160
$4
250
Price
Quantity Purchased
(Dozen per day)
$12
3
$11
7
$10
12
$9
20
$8
35
$7
60
$6
100
$5
160
$4
250
Explanation / Answer
Price
Quantity Purchased
Revenue
Variable Cost
Contribution Margin
12
3
36
12
24
11
7
77
28
49
10
12
120
48
72
9
20
180
80
100
8
35
280
140
140
7
60
420
240
180
6
100
600
400
200
5
160
800
640
160
4
250
1000
1000
0
Contribution margin is maximized at price point P=$6 per dozen
P=$6
2) Fixed Cost=$100
Total Profit=Contribution margin-Fixed Cost=200-100=$100
3) Price elasticity=(dQ/Q)*(P/dP)=(60/100)*6/1=3.6
4)
Price
Quantity Purchased
Revenue
Variable Cost
Contribution Margin
12
3
36
12
24
11
7
77
28
49
10
12
120
48
72
9
20
180
80
100
8
35
280
140
140
7
60
420
240
180
6
100
600
400
200
5
160
800
640
160
4
250
1000
1000
0