Explain, using examples from the bakery, the difference between fixed and variable costs and average and marginal costs.

Description

Task 1 and task 2 (word limit 950)

You have recently been appointed to work at your local chamber of commerce as a market analyst, advising small businesses.

You have two clients – a restaurant owner and a local bakery – and each one has sent you information and asked for a written report to advise them on the likely changing market conditions they may face this year and next after BREXIT and the ongoing pandemic.

• For the introduction of the report you must explain exactly what we mean by scarcity, factors of production and opportunity cost and why the owners have to make a choice between the time they spend at work and their family time. Give examples from both the restaurant and the bakery, so they fully understand.

• The local restaurant has sent you information about their local market demand and supply for sit down meals. The owners have read recently that real incomes are decreasing and want to know what this may mean for the demand and supply of sit down meals.

Construct a fully labelled demand and supply diagram using the data for 2020 and the expected changes (shifts) for 2021. Identify and explain the equilibrium position for 2020 and how it may shift in 2021

Then explain what the impact of this change in the market may mean for both the producer/businesses and their customer/consumers.

Task 2

The restaurant owner has also sent you data that seems to show that if they increase their prices by 10% they can expect demand to fall by 5%. This has worried the owners, and they want advice on what they should do with their pricing.

• Calculate the Price Elasticity of Demand value from the information, explain what the value mean.

TASK 3: (word limit 500)*

Your second client is a new baker and needs help understanding both their costs and whether they can produce as much as they like to meet any increase in demand in the market.

• Explain, using examples from the bakery, the difference between fixed and variable costs and average and marginal costs.

• Using the attached information that the baker has supplied calculate their different costs and construct a standard fully labelled cost diagram and identify their optimum level of production.

 

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