Describe the short- and long run supply curves for this market.

Scenario

The
toothbrush manufacturing industry currently has 50 companies making
toothbrushes. All the companies have fixed rate costs of $16 and average
variable costs as follows:

 

Quantity (thousands)	Average Variable Cost	Variable Cost	Total Cost	Marginal Cost	Average Total Cost
1	$1
2	$2
3	$3
4	$4
5	$5
6	$6

Refer to the scenario above and complete
the table columns to assist in answering the questions below:

1. If the price for a toothbrush
   is currently $10, what is the total quantity supplied in the market? Explain
   how you determined your answer.

1. As this market makes the
   transition to its long-run equilibrium, will the price rise or fall? Will the
   quantity demanded rise or fall? Will the quantity supplied by each firm rise or
   fall?
2. Describe the short- and long
   run supply curves for this market.

Scenario

You are a store manager at Bill’s Bagels. The store sells more than a dozen
types of freshly made bagels and a variety of cream cheeses. They also sell
bagel sandwiches at lunchtime. There is a small eat-in area in the store where
customers can sit. Your boss, Bill Bayer, is worried that a local competitor is
selling more bagels and charging less. He has asked you to review the data and
to examine procedures. He also wants you to write your recommendations to
maximize profits. Your recommendations should be in one to two pages and
include rationale for your recommendations.

Bill’s
Bagels is a competitive firm. The store has the following total cost and total
revenue:

 

Quantity	0	1	2	3	4	5	6	7
Total Cost	$8	$9	$10	$11	$13	$19	$27	$37
Total Revenue	$0	$8	$16	$24	$32	$40	$48	$56
Marginal Cost	$8	$1	$1	$1	$2	$6	$8	$10
Marginal Revenue	$0	$8	$8	$8	$8	$8	$8	$8

Bill
has four employees. You are the store manager, and you have three part-time
staff members who make bagels and take orders. The store opens at 6:00 a.m.
seven days a week and closes at 4:00 p.m., seven days a week.

Instructions

1. Read the
   scenario.
2. Create a
   one- to two-page Word document in which you answer the following questions
   and provide rationale for your recommendations:

• Describe
  the three general rules for profit maximization for a competitive firm.
  How could you apply these rules to Bill’s Bagels?
• Calculate
  Bill’s Bagels’ profit-maximizing price and quantity. Explain how you
  determined your answers. Recommend a bagel price and quantity to Bill
  that would maximize profit.
• Consider
  the strategies of shutting down or exiting the market. Should Bill’s
  Bagels, a profit-maximizing competitive firm, consider shutting down
  and/or exiting the market? Should the store consider another opening and
  closing schedule? Make a recommendation to Bill and explain your
  recommendation.