Suppose Jason Owns a Small Pastry Shop

question 178

Multiple Choice

Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost. Will Jason's strategy necessarily maximize profits for his pastry shop?

• A) Yes; Since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.
• B) Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run.
• C) No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.
• D) Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

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Definitions:

Event Occurs

Indicates the happening of a specific condition or outcome within a statistical experiment.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values; a low standard deviation indicates that the values are close to the mean.

Poisson Distribution

A probability distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space.

Expected Value

The calculated average of all possible values in a probability distribution, weighted by their probabilities.