QUESTION 1:
Lola is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $165,000, her rent was $10,000, her labor costs were $85,000, and her overhead expenses were $11,000.
a. What were Lola’s total explicit costs?
b. What were Lola’s total implicit costs?
c. Currently, Lola has 8 employees; with 8 employees, her bakery can produce 12 wedding cakes per day. If she hired a ninth employee, she’d be able to produce 16 wedding cakes per day. What is the marginal product, in terms of wedding cakes, of the ninth employee?
QUESTION 2:
Answer the following questions based on the accompanying graph.
- What is the change in revenues associated with the price effect for this firm when the price decreases from $50 to $30?
- What is the change in revenues associated with the output effect for this firm when the price decreases from $50 to $30
- Would the firm gain revenue if it lowered the price from $50 to $30? Explain.
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