Bianca bakes delicious cookies. Her total fixed cost is $48 a day, and her avera
ID: 1111109 • Letter: B
Question
Bianca bakes delicious cookies. Her total fixed cost is $48 a day, and her average variable cost is $3 a bag. Few people know about Bianca's Cookies and she is maximizing her profit by selling 19 bags of cookies a day for $8 a bag. Bianca thinks that if she spends $91 a day on advertising, she can increase her market and sell 34 bags of cookies a day for $8 a bag. If Bianca does not advertise, her economic profit/loss = $ If Bianca decides to advertise, she expects her economic profit/loss to be $ Is it worthwhile for Bianca to advertise (if her expectations are correct)? OA. Yes O B. NoExplanation / Answer
Bianca’s fixed cost = $48; average variable cost = $3 a bag.
Bianca maximizes her profit by selling 19 bags of cookies a day for $8 a bag.
Total revenue Bianca derives a day = $8 x 19 = $152
Total cost when selling 19 bags = $48 + ($3x19) = $105.
Her economic profit = $152 – 105 = $47.
Now, Bianca spends $91 a day toward advertising. She can now sell 34 bags for $8 a bag of cookies.
Total revenue she generates = $8 x 34 = $272.
Total costs that she incurs = $48 + $91 + ($3x34) = $241.
Economic profit Bianca gets = $272 – 241 = $31.
If Bianca does not advertise, she expects her economic profit = $47.
If Bianca decides to advertise, she expects her economic profit = $31.
A. Yes.
(It is worthwhile for Bianca to advertise because her expectations are correct, and she does not experience any loss, but proft).
*****
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.