Jin Ramen is a restaurant on Broadway. Jin Ramen’s daily Total Costs is TC =q^2/100 + 20q + 400. Where q is the number of meals served each day.
In the evening, customers are willing to pay up to $25 for a meal, while at lunch they do not want to spend more than $15. Should the restaurant remain open for business at lunch-time? Why?
If the restaurant wants to maximize profits, how many meals should it serve each day?
Is the market for restaurant meals around Broadway in long run equilibrium? Why?
a) It should not open In order to sell in the day time it compares AVC with the pricing. Let q = 1, then AVC = (q^2/100 + 20q)/q = q/100 + 20 = 20.01 which is greater than $15. Hence the price is less than AVC whne q = 1 so it should open in the evening only
b) MC = 2q/100 + 20 and Price is $25. Hence the production rule is P = MC or 25 = 2q/100 + 20
5 = 2q/100
q* = 500/2 = 250 meals per day.
c) Long run has ATC = MC. We have ATC = (q^2/100 + 20q + 400)/q = q/100 + 20 + 400/q and MC = q/50 + 20. Hence we have
q/100 + 20 + 400/q = q/50 + 20
q/50 - q/100 = 400/q
q/100 = 400/q
q^2 = 40000 or q = 200.
Long run equilibrium quantity is 200 so the current equilibrium of 250 is short run equilibrium and not a long run equilibrium.
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