Question

In a slow year, Deutsche Burgers will produce 2.8 million hamburgers at a total cost of $4.2 million. In a good year, it can produce 5.3 million hamburgers at a total cost of $6 million.

a. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

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?

Answer 1

e. Average cost per hamburger is reduced when more hamburgers are produced because fixed cost gets distributed on more number of units and that's why overall average cost per unit lowers