Reference no: EM132207713

Question: Lolita is a learned and intelligent squirrel. She has decided to set up a stall at the rodent mall. At her stall, she sells the acorns that she collects on the other side of the fields to the rats who, because they are used to the questionable material available in the garbage cans, find acorns fresh and tasty. Collecting acorns is a burdensome task that Lolita does not enjoy at all. In particular, she has to get up very early before she opens her stall to collect fresh acorns. The more acorns she wants to collect, the earlier she has to get up and she very much dislikes that. This cost, expressed in money, is ?? (??) = 0.5??², where ?? are the number of bags of acorns collected. In order to pick up the acorns, Lolita purchased a dustpan at the price of £50. There is no demand for used dustpans, so they cannot be sold or rented out in the secondary market.

1) Lolita has to pay a daily fee of £100 to open a stall in the mall. What is Lolita's total cost of bringing 10 acorn bags to the stall? What is her average cost? Does her business display economies of scale?

2) Acorns sell at the going price of £20 per bag. How many acorns will Lolita bring to the mall? What is her profit?

3) To bring the acorns across the Fields, Lolita uses an ancient wheelbarrow that she inherited from her grandmother. Dorita, Lolita's cat neighbour, is offering Lolita £150 to borrow the wheelbarrow for a day. Lolita does not take up the offer as having sole use of the wheelbarrow makes running her store a lot easier. What is Lolita's opportunity cost of her acorn business? What parts of her costs are sunk costs?

4) Other squirrels have learned about Lolita's great idea and also start bringing bags of acorns to the market. As a consequence, the price of acorns drops to £10. How many acorn bags should Lolita bring to the market at this new price?