2. Betsy McGee launched the Thai Ice Cream (TIC) shop in an area where with 35 p

Question

2. Betsy McGee launched the Thai Ice Cream (TIC) shop in an area where with 35 potential customers per square mile. Demand for cones is given by  

cones per year = 3.25 - 0.05 (Price + 7.25 Miles)

(1) If Betzy sets the price at $12.00 for a cone, what will be the market area for TIC?

(2) How many cones will TICsell per year?

(3) If TIC has fixed costs of $90,000 per year and a constant average variable cost of $3.50 per cone, what price (to the nearest cent) will maximize profit? What will be the market area? What will be the maximum profit?

Explanation / Answer

1. This will be 12*7.25= 87 iles.

2. The sale of cones will be negative and hence willl be 0. None will be sold.

3. This can be obtained through constrained profit axiization by including the cost coponent.

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