Question 5 (26 marks)
Your friend did a projection on the cost of running the bubble tea business as follows:

• Calculate the total fixed cost and total variable cost when he sold 100 cups of bubble tea. Give an example each for fixed and variable costs. (6 marks)
• Your friend is projecting that the sales of bubble tea will increase in the coming months. He thought that by just employing extra workers and raw materials, he is able to increase the sales of bubble tea indefinitely. Explain to him why this is not possible using one of the production theories that you have studied. State all the assumptions that you have made for this theory to work. (8 marks)
• Your friend is currently working as a technician, and he is monthly salary is $3,500.00.

He did an estimate of his expected cost in running the bubble tea business:

• Rental of the store is $600.00 per month.
• Raw material cost is $500.00 per month.
• utility bill is $400.00 per month.
• The rental of fridge and other machines is $500.00 per month.
• He needs to withdraw $2000.00 from his savings account to pay for all the expenses. The bank pays 1.2% interest per annum.
• His monthly revenue from selling bubble tea is $5,000.00.

Calculate the economic profit. Should your friend leave his job to operate this bubble tea business? What is the minimum number of cups of bubbles tea (priced at $2 per cup) should he sell to make it viable for him to quit his job? (12 marks)

Question 6 (15 marks)

Which market structure does the bubble tea market falls under? Explain your answer using the characteristics of the market structure you have suggested.