Solution and Explanation:
1. MC = Cost of raw materials + Labor cost
MC = 5 plus (10 divide by 2)
MC = $10
2. TFC = $300
Q = 300, AFC = TFC/Q = 300 divide by 300 = $1
3. Nicholas's optimum output is likely to be greater
Rationale: P = MR = $15, MC = $10
With MR exceeding MC, increasing output is advisable until MR equals MC to maximize profits.
4. His profit-maximizing output would likely increase
Reason: P = MR = $15, MC = $4 + $5 = $9
Since MR > MC, Nicholas should amplify his output until they are equated at the profit-maximizing point.
To ensure a stocking level that allows for half of the day-old cakes to be sold while the rest are discarded, an appropriate level is 5 cakes, as the shop should aim for a service level exceeding 0.4.
The risks generally examined in the context of project financing include: construction and completion risk, political and regulatory risk, and expropriation and nationalization risk, along with environmental risk.
