br/gt;The market of cookie is perfectly competitive in Country X.FannyQuestion 2 (20 marks)

The market of cookie is perfectly competitive in Country X. Fanny Cookies is one of the 300 price-taker

firms in producing and selling cookies. The profit-maximizing output level and price of Fanny Cookies

are 900 packs of cookies per month and $250 per pack, respectively. The monthly rent and insurance

are $65,000 inclusive. The other monthly expenses including salaries of the pastry chef, utilities

expense and miscellaneous expenses are summarized in the table below:

Quantity Produced

Total Variable Cost

(Packs of cookies)

0

0

500

40,000

500

56,000

700

75,000

800

95,000

900

120,000

1000

165,000

(a)

Construct ONE new table based on the above data for Fanny Cookies. Calculate the total cost,

marginal cost, and average total cost at each quantity level. Use the following headings for

your table. Calculate the figures and round your answers to integers. No working is required.

(3 marks)

Quantity

Price

Total

Marginal

Average

Produced

($)

Cost

Cost

Total

(Packs of

($)

($)

Cost

cookies)

($)

(Remarks: Significant mark deduction if this table is broken into 2 parts or 2 tables.)

(b)

State the profit-maximization rule. Explain whether Fanny Cookies is following the rule to

maximize its profit. What is the amount of profit (loss) made by the company? Show your

workings.

(3 marks)

(c)

Based on the given information and your answers in parts (a) and (b), draw a set of market-firm

diagram for the cookie market in Country X to include the critical data related to prices, quantities

and average total cost at the profit-maximizing output level. Label the area of profit/loss

according to the way taught in lecture 3, e.g. area bcfg in the diagram. No explanation is needed.

(4 marks)

(d) In the last quarter, there was a rise in the insurance paid by Fanny Cookie. At the same time, a

recent study indicated that there is a higher chance of heart attack for people having a habit of

eating cookies every day. As a result, Fanny Cookies could record a break-even state of

profitability. Illustrate this circumstance in the same set of market-firm diagram of part (c).

Explain how the market of cookies and individual firms like Fanny Cookies are affected in

Country X.

(10 marks)Economics