Answer to Question #182273 in Economics of Enterprise for Shehrazad salad

Question

Consider the following cost and revenue structure for Pristine Tea, a shop that specialises in selling green tea. Quantity Total Revenue ($) Total Cost ($) 0 0 31 1 9 35 2 18 40 3 27 46 4 36 53 5 45 61 6 54 70 7 63 80 8 72 91 9 81 103 Required: (a) Is it possible for Pristine Tea to engage in price discrimination to boost the shop’s earnings? Why or why not? (10 marks) (b) Determine the profit-maximising (or loss-minimising) levels of output AND price for Pristine Tea. Show carefully how you obtained the answers. (10 marks) (c) At the profit-maximising (or loss-minimising) level of output, explain whether Pristine Tea is productively and allocatively efficient. Support your answer with the aid of appropriate diagram(s). (15 marks)

Answer 1

(a) it is possible for pristine shop to engage in price discrimination. since its making losses, seliing at higher and different prices to its customers will boost the shops earning.

(b) loss maximizing = total cost-total revenue

$61-45=16$

$70-54=16$

minimizing loss is 16

price=$\frac{total revenue}{quantity}$

$\frac{45}{5}=9$

$\frac{54}{6}=9$

loss -minimizing price is $9 and quantity 5 and 6.

(c)At the loss-minimizing level of output, Pristine Tea is not productively and allocatively efficient. this is because it is making losses.

quantity total revenue total cost price loss

5 45 61 9 16

6 54 70 9 16