In a slow year, Deutsche Burgers will produce 4.0 million hamburgers at a total
ID: 2765693 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 4.0 million hamburgers at a total cost of $4.9 million. In a good year, it can produce 4.6 million hamburgers at a total cost of $5.2 million. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 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.) 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.) 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
A. Fixed cost = Total cost - Variable cost Variable cost = difference of total cost / difference of quantity Variable cost = (5.2M-4.9M)/(4.6M-4.0M) = 0.5 per unit So fixed cost = (5.2M) - (4.6M x0.5) = 2.9M B. Variable Cost = 0.5 per hamburger (calculated as above) C. Total Cost of 2 million Burgers = (0.5 x 2M) + 2.9M fixed costs = 3.9 M Avergae cost per buger = Total cost / total burgers = 3.9M/2M = $1.95 per burger D. Total Cost of 3 million Burgers = (0.5 x 3M) + 2.9M fixed costs = 4.4M Avergae cost per buger = Total cost / total burgers = 4.4M/3M = $1.47 per burger E. The fixed costs are spread across more burgers