In a slow year, Deutsche Burgers will produce 3.8 million hamburgers at a total
ID: 2732241 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 3.8 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 5.8 million hamburgers at a total cost of $6.5 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.)
Fixed cost $ million
b. What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Variable cost $ per burger
c. 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.)
Average cost $ per burger
d. What is the average cost per burger when the firm produces 4 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Average cost $ per burger
e. Why is the average cost lower when more burgers are produced?
The fixed costs are spread across more burgers.
Fixed costs are constant per burger.
Variable costs are lower per burger
Explanation / Answer
In A Slow Year
Number of hamburgers produce = 3.8 million
Total Cost = $5.4 million
In A Good Year
Number of hamburgers produce = 5.8 million
Total Cost = $6.5 million
b.
Suppose fixed cost is F and Variable cost is V.
In a slow year
$5.4 million = F + 3.8 million × V …………………………………….. (1)
In a good year
$6.5 million = F + 5.8 million × V …………………………………….. (1)
Now by solving both equation by subtracting equation 1 from equation 2.
$1.1 million = 2 million × V
V = $0.55
Variable cost is $0.55.
a.
Fixed cost is calculated below by putting variable value in equation 1.
$5.4 million = F + 3.8 million × $0.55
F = $5.4 million – $2.09 million
F = $3.31 million
Fixed cost for hamburgers is $0.55 per Berger and fixed cost is $3.31 million.
c.
Total unit produce = 3 million
Total cost in producing 3 million product is calculated below:
Average cost = ($3.31 million + 3 million × $0.55) / 3 million
= ($3.31 million + $1.65 million) / 3 million
= $4.96 million / 3 million
= $1.6533
Average cost in producing 3 million unit of hamburgers is $1.6533.
d.
Total unit produce = 4 million
Total cost in producing 4 million product is calculated below:
Average cost = ($3.31 million + 4 million × $0.55) / 4 million
= ($3.31 million + $2.2 million) / 4 million
= $5.51 million / 4 million
= $1.3775
Average cost in producing 4 million unit of hamburgers is $1.3775.
e.
Average cost lower when more burgers are produced, the fixed costs are spread across more burgers.
Hence, option (A) is correct answer.