In a slow year, Deutsche Burgers will produce 1 million hamburgers at a total co
ID: 2762591 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 1 million hamburgers at a total cost of $3.2 million. In a good year, it can produce 2 million hamburgers at a total cost of $3.4 million.
a. What is the average cost per burger when the firm produces 0.5 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is average cost when the firm produces 1 million hamburgers? (Round your answer to 2 decimal places.)
c. Why is average cost lower when more burgers are produced?
aa. The fixed costs are spread across more burgers.
bb. The fixed costs are spread across less burgers.
cc. Fixed costs are constant per burger.
dd. Variable costs are lower per burger.
Explanation / Answer
a)
For production of 0.5 million burgers, fixed costs are $. million.
Variabe cost = $0.20 * 500,000 = $0.10 Million
Average costs = $3.10 Million / 0.5 Million = $6.2 / burger
b)
Average cost = $3.2 million / 1 million = $3.20 / burger
c)
The fixed costs are spread across more burgers.