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University of Toronto Mississauga
Robert Barber

TUTORIAL 7WEDNESDAYJUNE 11 2014 4PM5PM QUESTION 86A local pizza shop has hired a consultant to help it compete with national chains in the area Because most business is handled by these national chains the local shop operates as a price taker Using historical data on each day are given by 2STC10q01q where q is daily pizza production The consultant also reports that shortrun marginal costs are given by SMC102q a What is the pricetaking firms shortrun supply curveb Does this firm have a shutdown price That is what is the lowest price at which the firm will produce any pizzac The pizza consultant calculates this shops shortrun average costs asSAC10q101qand claims that SAC reaches a minimum at q10 How would you verify this claim without using calculusd The consultant also claims that any price for pizza of less than 3 will cause the shop to lose money Is the consultant correct Explaine Currently the price of pizza is low 2 because one major chain is having a sale Because this price does not cover average costs the consultant recommends that this shop cease operations until the sale is over Would you agree with this recommendation ExplainQUESTION 87Beths Lawn Mowing Service is a small business that acts as a price taker Beth has costs given by2 Total Cost01q10q50 Marginal Cost02q10where qthe number of acres Beth chooses to mow in a week The town where Beths Lawn Mowing Service is located is subject to sporadic droughts and monsoons During periods of drought the price for mowing lawns drops to 15 per acre whereas during monsoons it rises to 25 per acrea How will Beth react to these changing prices
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