At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake

Economics Dec 23, 2020

At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes, Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes for:

a. $6.50 each.

b. $7.50 each.

c. $9.50 each.

d. $10.50 each.

Expert Solution

The answer is C).

Since that total producer surplus is $19.50 and 3 cakes are sold, so producer surplus per unit is 19.50 / 3 = 6.5. Producer surplus is price per unit minus the cost per unit. Each unit cost is 3, so the price is 3 + 6.5 = $9.5.

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