In a slow year, Deutsche Burgers will produce 2.800 million hamburgers at a tota
ID: 2658233 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 2.800 million hamburgers at a total cost of $3.400 million. In a good year, it can produce 4.800 million hamburgers at a total cost of $4.600 million
. a. 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.)
b. 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.)
Explanation / Answer
Suppose C(x) = F + 2.8*x
F = Fixed Cost
x = Variable Cost
C(x) = total cost
3.4 = F + 2.8*x -----(1)
4.6 = F + 4.8*x -----(2)
(2) - (1)
2*x = 1.2
x = 0.6
F = 3.4 - 2.8*0.6 = 1.72
Total Cost = 1.72 + 0.6*Quanitty
Average Cost = Total Cost/Quantity = 1.72/Quantity + 0.6
a)
Average Cost = 1.72/Quantity + 0.6
Quantity = 2
Average Cost = 1.72/2 + 0.6 = $1.46 per burger
b)
Average Cost = 1.72/Quantity + 0.6
Quantity = 3
Average Cost = 1.72/3 + 0.6 = $1.17 per burger