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Understanding Economics
Understanding Economics: A Contemporary Perspective, 2/e
Mark Lovewell, Ryerson Polytechnic University
Costs of Production

Internet Application Questions



1

You are considering whether to start a small bakery that will produce 10,000 loaves of bread a month.
  1. Using the directions set out in Pricing for Profit, calculate your minimum acceptable price if your material cost is 23 cents per loaf, your labour cost is 21 cents per loaf, the rent and upkeep of your business premises is $1600 per month, and you purchase a special $100,000 baking oven which you estimate will be able to bake a half a million loaves before it needs to be replaced. The profit rate you need to make as a percentage of your total accounting costs in order to enter (and stay in) the bakery business is 10%.
  2. What is your economic profit per loaf if you find you can sell all the bread you bake at $1 a loaf?
  3. Which of the costs in part (a) are fixed and which are variable?

 




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