Question

In a slow year, Deutsche Burgers will produce 3.200 million hamburgers at a total cost of $5.400 million. In a good year, it can produce 5.400 million hamburgers at a total cost of $6.100 million.

**a.** What are the fixed costs of hamburger
production? **(Do not round intermediate calculations. Enter
your answer in millions rounded to 1 decimal place.)**

**b.** What is the variable cost per hamburger?
**(Do not round intermediate calculations. Round your answer
to 2 decimal places.)**

**c.** What is the average cost per burger when the
firm produces 2 million hamburgers? **(Do not round
intermediate calculations. Round your answer to 2 decimal
places.)**

**d.** What is the average cost per burger when the
firm produces 3 million hamburgers? **(Do not round
intermediate calculations. Round your answer to 2 decimal
places.)**

**e.** Why is the average cost lower when more
burgers are produced?

The fixed costs are spread across more burgers.

Variable costs are lower per burger.

Fixed costs are constant per burger.

Answer #1

Ans:

variable cost per hamburger = Change in total cost / Change in quantity produced

= ($6.100 million - $5.400 million) / (5.400 million - 3.200 million)

= $0.7 million / 2.2 million

= $0.32

fixed costs of hamburger production = $5.400 million - (3.200 million * $0.32)

= $5.400 million - $1.024 million

= $4.38 million

a) fixed costs of hamburger production = $4.38 million

b) variable cost per hamburger = $0.32

c) average cost per burger when the firm produces 2 million hamburgers = Total cost / 2 million

= $5.02 million / 2 million

= $2.51

Total cost = $4.38 million + ($0.32 * 2 million)

= $4.38 million + 0.64 million

= $5.02 million

d) average cost per burger when the firm produces 3 million hamburgers = Total cost / 3 million

= $5.34 million / 3 million

= $1.78

Total cost = $4.38 million + ($0.32 * 3 million)

= $4.38 million + 0.96 million

= $5.34 million

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