Question

A bakery famous for its cupcakes opens its doors at 9 a.m. and allows each customer to purchase up to 2 cupcakes until the day's supply of cupcakes runs out. Customers begin lining up around 8 a.m. each day and the cupcakes usually run out around 9:30, leaving dozens of unserved customers disappointed. Which of the following statements about this market are true? Select all that apply.1)The cupcakes are being sold below their equilibrium price.
2)The bakery is maximizing its short-run producer surplus.

3)The customers who receive cupcakes are the customers with the highest willingness to pay for cupcakes.

4)The bakery is not using price as the only means of allocating cupcakes to its customers.

5)Consumer surplus is being maximized

Answer 1

Answer:

The statements about the market that are true are:

1) The cupcakes are being sold below their equilibrium price. This is true because we can see there exists excess demand which won't exist at the equilibrium price.

3) The customers who receive cupcakes are the customers with the highest willingness to pay for cupcakes. This is why they are standing in the queue even before the bakery opens.

4) The bakery is not using price as the only means if allocating cupcakes to its customers. It is also using time as a factor as only those receive cupcakes who come early.

(2) and (4) are false because they are maximized only at the equilibrium level.