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Donut Store Price Decisions

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A donut store is located in a mall and is the only donut store in that mall. The demand schedule for donuts (per dozen) is given in the table below. If the marginal cost to produce a dozen donut is $4 per unit, how many units should the firm produce?

Price Quantity Purchased
(Dozen per day)
$12 3
$11 7
$10 12
$9 20
$8 35
$7 60
$6 100
$5 160
$4 250

What should the store charge?
If the fixed cost is $100, what is the profit?

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Solution Preview

See the attached file as a supplement.

- How do I find out what the store should charge?
"First calculate the marginal revenue for each price level. As we decrease the price, the marginal revenue will decrease. To select the profit maximizing ...

Solution Summary

This post explains how to set the price for a commodity given the demand curve and marginal cost for the commodity.

$2.19