Question: Carrot Patch Dolls a small doll producer in Malaysia is
Carrot Patch Dolls, a small doll producer in Malaysia, is considering producing a new doll variety. Production of this doll type requires an initial setup cost, followed by constant variable cost. The cost function of producing variety i is C = 12,000 + 2Qi, where Qi is the quantity of variety i. The demand function for this particular variety in Malaysia is Qi = 4000 – 1000p. Carrot Patch seeks to maximize its profit and will not produce the doll if it would make a loss (p < AC) by doing so. If Carrot Patch cannot sell the doll outside Malaysia, does it pay to produce this variety? What decision does it make if Carrot Patch is able to sell the doll in Singapore as well as Malaysia, where the demand curve is exactly the same as in Malaysia?
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