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some pointless, simple econ. answers
Nov. 9th, 2010 11:08 pm1. Equilibrium price is the price that gets items to sell exactly as fast as new ones are made. Since the most you can make is 10 sandwiches, find the price that makes 10 people per day want to buy a sandwich. That's $4.
2. Market value is the current competitive price on the open market. I haven't told you anything about the whole market in this example, so you can't answer this question.
3. You lose money at $0 and $1 since you can't recover costs, so you can reject those possibilities out of hand. Likewise, you lose money at $7 since you don't sell anything. If you run the remaining numbers, you should see that $5 is the best price. It nets you a total gain of $27. (Remember to make only eight sandwiches or you'll waste $2 making sandwiches that won't sell.)
4. This is the tricky one. First of all, it isn't an economics question. It's...I don't know. A political question? A moral question? Whatever the case, you can't answer it with economics, and you can't answer it at all until you decide what you mean by "ethical". Once you figure that out, there are several approaches you could take.
If you're trying to make the most money, sell for $5.
If you think it's wrong to charge more than a certain markup over how much your ingredients cost, sell for only $2 or $3.
If you're primarily trying to distribute sandwiches to as many people as possible and maximizing your profit is a secondary concern, sell for $4.
If you want to get sandwiches to as many people as possible at the lowest possible cost that doesn't run you out of business, sell for $2.
If you want to run a total charity, sell for $0.
One thing to keep in mind: in all these cases except the first, only ten people get sandwiches every day. You don't actually feed more people by selling your food for super-cheap.
2. Market value is the current competitive price on the open market. I haven't told you anything about the whole market in this example, so you can't answer this question.
3. You lose money at $0 and $1 since you can't recover costs, so you can reject those possibilities out of hand. Likewise, you lose money at $7 since you don't sell anything. If you run the remaining numbers, you should see that $5 is the best price. It nets you a total gain of $27. (Remember to make only eight sandwiches or you'll waste $2 making sandwiches that won't sell.)
4. This is the tricky one. First of all, it isn't an economics question. It's...I don't know. A political question? A moral question? Whatever the case, you can't answer it with economics, and you can't answer it at all until you decide what you mean by "ethical". Once you figure that out, there are several approaches you could take.
If you're trying to make the most money, sell for $5.
If you think it's wrong to charge more than a certain markup over how much your ingredients cost, sell for only $2 or $3.
If you're primarily trying to distribute sandwiches to as many people as possible and maximizing your profit is a secondary concern, sell for $4.
If you want to get sandwiches to as many people as possible at the lowest possible cost that doesn't run you out of business, sell for $2.
If you want to run a total charity, sell for $0.
One thing to keep in mind: in all these cases except the first, only ten people get sandwiches every day. You don't actually feed more people by selling your food for super-cheap.
