Suppose at some point after you graduate you decide to open a bakery that sells cupcakes....
Suppose at some point after you graduate you decide to open a bakery that sells cupcakes. You estimate that the startup costs are equal to $100,000. You can either borrow this $100,000 from a bank, and pay $1,000/month to the lender, or withdraw this amount from your savings account.
a) Should the decision of whether you borrowed the $100,000 or withdrew it from your savings account matter in terms of how many workers to hire, what price to charge for baked goods, or how much to spend on advertising? Why or why not?
b) In addition to the startup costs described above, suppose the
marginal costs of making cupcakes are constant at $1/cupcake. What
are your average total costs/cupcake at Q=1,000 and Q=50,000? What
economic concept applies to this situation?
Homework Answers
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Suppose at some point after you graduate you decide to open a
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