The American Baker’s Association reports that annual sales of bakery goods last
ID: 1195410 • Letter: T
Question
The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent certain types of cancer. You are the manager of a bakery that produces and packages gourmet bran muffins, and you currently sell bran muffins in packages of three. However, as a result of this new report, a typical consumer’s inverse demand for your bran muffins is now P = 6 - 0.5Q.
If your cost of producing bran muffins is C(Q) = .5Q, determine the optimal number of bran muffins to sell in a single package and the optimal package price.
Instruction: Round your answer for the optimal package price to two decimal places.
Optimal package size: units
Optimal package price: $
Explanation / Answer
TR = Q( 6- 0.5Q)
In equilibrium,
MR = MC
6 - Q = 0.5
Q = 5.5
Optimal number of bran muffins to sell in single package is 6.
Optimal package price is $3.
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