Ice-Cream Shop Staffs Case Study

Problem Set 7 Name: ________________________________________ Due March 22nd, 2019 1. The table below shows the relationship between how many scoopers an ice-cream shop staffs

and the number of ice-cream cones sold each day. Each scooper is paid $100 per day and the ice-cream shop has fixed costs equal to $100 per day.

Scoopers Ice-Cream Cones 0 0 1 80 2 130 3 170 4 195 5 205

In the summer the market price for ice cream is $3.

a. How many workers should be staffed each day in the summer?

b. How much profit will the ice cream shop earn each day during the summer?

Demand for ice cream is lower in the winter, so the market price drops to $2.25.

c. How many workers should be staffed each day in the winter?

d. How much profit will the ice cream shop earn each day during the winter?

Suppose the firm’s fixed costs decrease to $80 per day.

e. In the short run how will the decrease in fixed costs affect the firm’s profits?

Circle One: Increase Decrease Unchanged

f. How will the decrease in fixed costs affect the number of workers that the firm staffs?

Circle One: Increase Decrease Unchanged

2. The graph above shows the cost curves for an individual firm producing t-shirts, answering the following three questions, assuming that the market for t-shirts is perfectly competitive.

a. If the market price is P = $32, what quantity of t-shirts will the firm choose to produce?

b. If the market price is P = $32, how much profit will the firm earn? The label on the graph.

c. Using the equation for profit, demonstrate that the firm’s profit will equal $0 when the

The price of the t-shirts is $20.

d. If the market price is P = $8, what quantity will the firm produce? How much profit will it earn?

e. What is the lowest price at which the firm would operate (𝑄𝑄 > 0) in the short run?

MC P