Felicity runs her family’s small cupcake shop, which designs and bakes cupcakes in different flavors. The capital stock of the firm consists of three machines of various vintages, each of which can produce cupcakes of any flavor.
All of the machines are in excellent condition, and all machines can be running at the same time.

a. Assume that “cost of processing” includes all labor and materials, including the owner’s wages. Assume further that Felicity’s family signed a long-term contract (20 years)
with a service company to keep the machines in good repair for a fixed fee of €2,190 per year, or €6 per day.
(1) Derive the firm’s marginal cost curve.
(2) Derive the firm’s total cost curve.

b. At a price of €0.40, how many cupcakes would the company produce? What would total revenues, total costs, and total profits be?

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Machine 1 Machine 2 Machine 3 Cost of Processing per Cupcake 0.20 0.30 0.50 Maximum Total Capacity (Cupcakes) per Day 100 200 250