Question: james mainly sells confectionery items newspapers magazines and cigarettes in...
James mainly sells confectionery items, newspapers, magazines and cigarettes in his convenience store. Noting his small business is not thriving, he thought of selling hot pies and rolls too.
Suppose the total cost function for rolls and pies is,
TC = 900 + 50Q, Q =
Where denote the quantities of rolls and pies respectfully. If P1 and P2 denote the corresponding prices, the inverse demand equations are.
a) If James decides to make a total of 48 rolls and pies per day and charges different prices as above (that is, P1 ≠ P2 ), how many of rolls and pies each should he make in order to maximize the profit of a particular day? Estimate and interpret the Lagrange Multiplier λ [note: assume second-order conditions are satisfied].
b) Using your knowledge of input-output tables, explain which components of the economy will be affected if all convenience stores, including James’, closed down for three months due to the COVID-19. What would be the overall impact of the shutdown of all convenience stores on total output of James’ country? (half a page maximum).