Answer to Question #183191 in Microeconomics for Glory Boamah

Question

A bakery is located just up the road from Jane’s home. On Saturday mornings, she, like many others, buys her bread there. Saturday morning, predictably, is the busiest time of the week for the store, which necessitates the hiring of additional employees. On weekdays, only one assistant provides services to the customers. But because of the busy scheduling on Saturdays, five assistants are brought in to assist. The problem is the additional five are not able to serve five times as many customers. Labour is faced with diminishing return and some factors of production in the bakery shop are fixed. - The shop size is fixed. Saturday mornings at the shop is terrible for customers because of overcrowding. Assistants sometimes had to wait while customers squeezed past each other.

1. As an economist and a friend to Jane, what advice will you give to the baker?

2. Explain the three (3) stages of production to the baker.

3. Explain the forecast of the demand for bread when price is increased

Answer 1

Solution:

1.). As an economist and Jane’s friend, I would advise her not to add the additional five assistants on Saturdays. This is because the variable costs will increase yet there are fixed costs that will not change and there will be no additional income. The shop will suffer unnecessary losses.

 

2.). The three stages of production to the baker are as follows:

1. Primary stage – This is the stage where the raw materials such as flour and oil are collected.

2. Secondary stage – This is the stage where the raw materials collected are put into use such as making the bread.

3. Tertiary stage – This is the stage where the bread is ready and is sold to the consumers. This stage supports the activities of the other two.

 

3.). Bread is a basic good and hence a necessity. The demand for bread is, therefore, inelastic, which means that the amount of bread bought changes with an increase in price. When the price goes up, people will still purchase the bread. Therefore, the demand for bread will not change much with the increase in price.