ve just taken over the struggling family business: Cajun Chocolates. The choccla
ID: 1122641 • Letter: V
Question
ve just taken over the struggling family business: Cajun Chocolates. The chocclates are e in Louisiana and are sufficiently differentiated in production process and r chocolate, so you operate in a monopolistically competitive market. historical sales, prices, and productions costs,you construct the following quality from and cost at different analysis of price and cost MC ATC 5.00 4.50 AVC 3.00 110 165 , how many chocolates should you produce and what a. If you want to maximize profits price should you charge? b. How much economic profit (or loss) are you making? c. Describe recommendations for Cajun Chocolates in the long run? Consider advertising spending.Explanation / Answer
a. Profit maximises at the level of output where marginal revenue is same as marginal cost.
Q = 55 and P = 4.50
b. Profit per unit = P-ATC
Profit = 4.50 - 5.50 = -1.50. negative profit means loss.
Total loss = Loss x Quantity = 1.50 x 55 = 82.50
c. In the long run, firm should continue production becasue price is more than average variable cost.
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