Ossuary produces whole wheat bread which sells for $3 a loaf. In order to produce an additional loaf of bread, it would cost Ossuary $3, but the average loaf only costs them $2.50. Assuming that the market for bread is competitive, is Ossuary in short run equilibrium? Why or why not? Is Ossuary in long run equilibrium? If so, explain why. If not, explain what would happen in the market to bring it to equilibrium.
Ossuary produces whole wheat bread which sells for $3 a loaf. In order to produce an additional loaf of bread, it would cost Ossuary $3, but the average loaf only costs them $2.50. Assuming that the market for bread is competitive, is Ossuary in short run equilibrium? Why or why not? Is Ossuary in long run equilibrium? If so, explain why. If not, explain what would happen in the market to bring it to equilibrium.
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Kathy's Bakery is a local full-service bakery in Omaha, Nebraska. Kathy sells loaves of wheat bread for $3 a loaf. Of this amount, $1.50 is profit contribution. She is considering an attempt to differentiate her shop from several other competitors by only producing a special rice bread for customers allergic to wheat. Doing so would increase her unit cost by 50รยข per rice loaf. Current monthly profits are $400 on 800 unit sales.
A. | Assuming average variable costs are constant at all output levels, what is Kathy's total cost function before the proposed change? |
B. | What will tbe total cost function be if rice loafs are produced? |
C. | Assume rice loaf prices remain stable at $3. What percentage increase in sales would be necessary to maintain current profit levels? |
Market for bread
Price | Quantity demanded | Quantity supplied |
50 | 0 | 40 |
40 | 10 | 30 |
30 | 20 | 20 |
20 | 30 | 10 |
10 | 40 | 0 |
0 | 50 | 0 |
1. What is the equilibrium price and quantity in this market?
2. Suppose that the price of butter falls dramatically (due to lower butter production costs) so that the quantity demanded for bread increases by 40 units at any price. By how much does the price of bread change? By how much does quantity change?
3. Suppose that bread buyers are forced to wait in long lines in order to buy bread. If the value of their time can be estimated at $10/ hour, about how long would you expect people to be waiting in line to get a loaf of bread?
4. Suppose the government wishes to alleviate the problems caused by upward price pressure due to the price ceiling by taking all fresh bread off the market; all bread sold must be at least 1 day old. Would you expect this regulation to achieve the desired effect? Explain your answer?