3. Punch Cards and Profit. Suppose the typical bakery customer initially purchas

Question

3. Punch Cards and Profit. Suppose the typical bakery customer initially purchases 10 loaves of bread per month at a price of $6 per loaf. The slope of the individual demand curve is -$0.50 per loaf. Under a new punch-card club, the 11th loaf purchased in a given month is free. To simplify matters, suppose the typical consumer joins the club, buys 10 loaves, and gets an 11th loaf for free. The bakery's objective is to maximize its profit while keeping the typical customer just as happy as he or she was before the punch-card club. The bakery's marginal cost of bread is $4.00 a. To keep the typical customer just as happy, the bakery will increase [_ b. The bakery's profit per customer increases by l to $I _1

Explanation / Answer

Marginal analysis involves a cost-versus-benefits comparison of various business activities. In marginal analysis, the cost of an activity is measured against incremental changes in volume to determine how the overall change in cost will affect the bottom line of a business. Marginal analysis can show the cost of additional production by a business all the way up to the break-even point. This is generally the maximum cost that a business can sustain without losing money.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.