Question: As a budding entrepreneur, you have purchased a small bagel shop close to school. You have engaged in a market study to categorize your customers’ willingness to pay for a meal (coffee+bagel) into 8 equal size groups: ($5.00, $4.50, $4.00, $3.50, $3.00, $2.50, $2.00, and $1.50). Assume that your only costs are labor and materials, which cost $2.25 per meal sold.

a. Complete the blank cells in the table below. For the purposes of determining quantity sold at each price, assume that the size of each “group” is 1 (i.e. you can pretend that there are only 8 consumers in the market for bagels and coffee).

b. What price should you charge for a meal? Explain how you determined this price level? How much profit will you earn at your selected price?

Price Quantity (Q) Total Revenue(TR) Marginal Revenue (MR) Marginal Cost(MC)

$5.00

$4.50

$4.00

$3.50

$3.00

$2.50

$2.00

$1.50