Final answer:
The shaky bagel baker's method of determining the price includes costs and desired profit. Higher production costs due to less efficient equipment might require charging higher prices to maintain profit margins. The optimal price point is influenced by balancing production costs and desired profit, as well as consumer reactions to price changes.
Step-by-step explanation:
The shaky bagel baker's method of determining the per-bagel price can be compared to his cross-town rival's method using a mathematical approach to pricing. The price of a bagel (or any product) primarily consists of two components: the cost of production at the margin and the desired profit. The cost of production includes expenses such as ingredients, equipment, rent, and labor. In contrast, the desired profit margin is influenced by other factors, including the business's typical profit margins and can vary per firm.
For example, if the shaky bagel baker has higher production costs due to less efficient equipment, such as a standard residential size oven compared to an industrial-size oven of a Canadian worker as mentioned in the reference, his cost of producing bagels will be higher. Consequently, to maintain a certain profit margin, this baker would have to charge a higher price per bagel than his rival who might be benefiting from economies of scale with more efficient production.
Additionally, the firm's pricing choice is illustrated by the point on the firm's supply curve, which represents the quantity and associated price. The firm aims to balance production costs and profit margin to determine an optimal price point. This is based on the principle that consumers, like Ogden, react to price changes by adjusting their consumption, but may leave it unchanged for goods they need or strongly prefer, such as pizzas in the given example.