Question

You are thinking of setting up a lemonade stand. The stand itself costs $200. The ingredients for each cup of lemomade cost $0.50. You charge $1.00 for each cup of lemonade,

   a. What is the fixed cost (FC) of doing business?

   b. What will be the total cost (TC), total revenues (TR) and profit (P) for 50 cups of lemonade?

Answer 1

Ans.

a. Fixed costs are the overhead costs which are constant. Here, the cost of lemonade stand is fixed cost which remains constant.

Fixed cost of doing business = $200

b. Total cost = Fixed cost + Variable cost

Where fixed cost = $200 and variable cost is the cost of ingredients for each cup of lemonade. However the for each cup variable cost = $0.50. So the cost of 50 cups = 0.50*50 = $25.

Total cost = 200 + 25 = $225

Total revenue = Price of 50 cups * quantity

Since the price of each cup of lemonade = $1.00

So price of 50 cups of lemonade = 50*1 = $50 and quantity = 50 cups

Thus total revenue = 50*50 = 2,500

Hence, Profit of 50 cups = Total revenue - Total cost

Profit = 2,500 - 225 = $2,275