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Economics

Kathy's Bakery is a local full-service bakery in Omaha, Nebraska. Kathy sells loaves of wheat bread for $3 a loaf. Of this amount, $1.50 is profit contribution. She is considering an attempt to differentiate her shop from several other competitors by only producing a special rice bread for customers allergic to wheat. Doing so would increase her unit cost by 50¢ per rice loaf. Current monthly profits are $400 on 800 unit sales.

A. Assuming average variable costs are constant at all output levels, what is Kathy's total cost function before the proposed change? TC = $800 + $1.50Q

B. What will the total cost function be if rice loafs are produced? TC = $800 + $2Q

C. Assume rice loaf prices remain stable at $3. What percentage increase in sales would be necessary to maintain current profit levels?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91720253

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