In a slow year, Deutsche Burgers will produce 5 million hamburgers at a total co
ID: 2644922 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 5 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 10 million hamburgers at a total cost of $8.4 million.
What is the average cost per burger when the firm produces 2.5 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is average cost when the firm produces 5 million hamburgers? (Round your answer to 2 decimal places.)
In a slow year, Deutsche Burgers will produce 5 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 10 million hamburgers at a total cost of $8.4 million.
Explanation / Answer
Slow year cost details :
Number of hamburgers : 5 million
Total cost : $5.4 million
cost per hamburger : Total cost/ Number of hamburgers = 5.4/5 = $1.08 per hamburger
Good Year Cost details :
Total Hamburgers : 10 million
Total cost : $8.4 million
Cost/ hamburger : Total cost/ Total number of hamburgers = 8.4 / 10 = $ 0.84 per hamburger
a. Average cost :( cost per hamburger for slow year + cost per hamburger for good year ) / 2
= (1.08 + 0.84 ) / 2 = 0.96
Average cost is $ 0.96 per hamburger.
Total cost for 2.5 million hamburger : 2.5 million * 0.96 = $ 2.4 million
b.
Average cost :( cost per hamburger for slow year + cost per hamburger for good year ) / 2
= (1.08 + 0.84 ) / 2 = 0.96
Average cost is $ 0.96 per hamburger.
Total cost for 5 million hamburgers = $0.96* 5 = $ 4.8 million
c.The average is cost lower when more burgers are produced since the fixed cost are spread across more burgers. Fixed cost remains same for all level of production. Therefore average cost gets lower when more burgers are produced because fixed cost get across more burgers.