Question

In a slow year, Deutsche Burgers will produce 2.900 million hamburgers at a total cost of $4.300 million. In a good year, it can produce 4.900 million hamburgers at a total cost of $5.500 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.)

Answer 1

total cost = fixed cost +production unit *variable cost

a

4.3 = fixed cost+2.9*variable cost

5.5 = fixed cost+4.9*variable cost

5.5-4.3 = fixed cost+4.9*variable cost-(fixed cost+2.9*variable cost)

1.2 = 2*variable cost

variable cost = 0.6 (answer b)

4.3 = fixed cost+2.9*variable cost

4.3 = fixed cost+2.9*0.6

fixed cost = 2.56m (answer a)

c

average cost = (fixed cost+production*variable cost)/production

=(2.56+2*0.6)/2=1.88

d

average cost = (fixed cost+production*variable cost)/production

=(2.56+3*0.6)/3=1.45