In a perfectly competitive market there is a cookie shop that sells 1,200 cookies daily. Each cookie sells for the market price of $0.75 and they sell out every day. Assume that this company has labor costs of $275 and materials costs of $400. a. At what price would this cookie shop shutdown in the short run? - Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000 (not sunk). The normal rate of return is 5%. c. If the new shop could operate under the same conditions as the original location is it a good business decision to expand? d. What would be the new shop's daily profit?

In a perfectly competitive market there is a cookie shop that sells 1,200 cookies daily. Each cookie sells for the market price of $0.75 and they sell out every day. Assume that this company has labor costs of $275 and materials costs of $400. a. At what price would this cookie shop shutdown in the short run? - Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000 (not sunk). The normal rate of return is 5%. c. If the new shop could operate under the same conditions as the original location is it a good business decision to expand? d. What would be the new shop's daily profit?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 21P

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