Elaine makes delicious cupcakes that she mails to customers

Elaine makes delicious cupcakes that she mails to customers across the country. Her cupcakes are so delicious that she has a great degree of pricing power. Her customers have identical demands for cupcakes. A representative customer\'s demand is shown in the diagram below. Elaine can make a cupcake for a constant marginal and average total cost of $0.50.

Suppose that Elaine decides to offer a quantity discount according to the following terms: the first 10 cupcakes can be bought for $1.50 each; any cupcake over 10 will be offered at a discount price. How many cupcakes will each customer order at the discounted price? How much do Elaine\'s profits increase?

Solution

ATC=0.50

MC= 0.50/20=0.025

TR= 15

further 5 cupcakes=

:Profit = 2.50

Equilibrium at MC=MR

MR= 0.025

TR= 50 +0.025x5-0.025x15= 2.50x * X

Where x= no. of cups49.750=3.50x= 14.2(approx)

If profit is 2.50, cups =15

if profit is 5.00, cups =30

if profit =1.25, cups= 8

If profit=5.00 and cups additional 10, then cups= 25

By,

Nishant Bhatt