In a slow year, Deutsche Burgers will produce 2.8 milliion hamburgers at a total
ID: 2744527 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 2.8 milliion 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 $6.0 million.
a. what are the fixed costs of hamburger production? (Do not round intermediate calcualtions . Enter your answer in millions rounded to 1 decimal place)
Fixed cost _____________
b. what is the variable cost per hamburger? (D o not round intermediate calculations. Round your answer to 2 decimal palces)
Variable cost____________per burger
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)
Average cost ______________per burger
d. Whata is the average cost per burger when the firm porduces 3 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?
a. the fixed costs are spread across more burgers
b. fixed costs are constant per burger
c. variable costs are lower per burger
Explanation / Answer
b) Variable Cost = Change in Total Cost/Change in Units Variable Cost = (6,000,000 - 4,200,000) / (5,300,000 - 2,800,000) Variable Cost = (1,800,000) / (2,500,000) Variable Cost per Hamburger = $.72 per unit a) Fixed Costs = 4,200, 000 - 2,800,000*.72 Fixed Costs = 2,184,000 c) Total cost for 2m = 2184,000 + 2m*.72 Total cost for 2m = 3,624,000 Average Cost = 3,624,000/2000,000 = $1.81 d) Total cost for 3m = 2184,000 + 3m*.72 Total cost for 3m = 4,344,000 Average Cost = 4,344,000/3000,000 = $1.45 per unit e) a. the fixed costs are spread across more burgers