A friend owns an ice cream shop. Aware of your current studies ineconomics, the friend asks for your help in determining what sheshould do regarding her shop in the winter. Her shop is veryprofitable in the spring, summer, and fall. However, she gives youthe following data for the profit maximizing level of productionregarding the winter (assume she only sells ice cream cones):
Average Fixed Cost = $2
Average Variable Cost = $1
Marginal Revenue = $1.50
a) Other things constant, should your friend continue to operate inthe winter months? Be sure to explain to her why she should orshould not continue to operate.
b) In the following year, your friend asks for your help again. Allof the data remain the same; however your friend finds that she isno longer profitable in the spring, summer, or fall months. Whatadvice would you give to her under these circumstances? Why?
A friend owns an ice cream shop. Aware of your current studies ineconomics, the friend asks for your help in determining what sheshould do regarding her shop in the winter. Her shop is veryprofitable in the spring, summer, and fall. However, she gives youthe following data for the profit maximizing level of productionregarding the winter (assume she only sells ice cream cones):
Average Fixed Cost = $2
Average Variable Cost = $1
Marginal Revenue = $1.50
a) Other things constant, should your friend continue to operate inthe winter months? Be sure to explain to her why she should orshould not continue to operate.
b) In the following year, your friend asks for your help again. Allof the data remain the same; however your friend finds that she isno longer profitable in the spring, summer, or fall months. Whatadvice would you give to her under these circumstances? Why?
