Deutsche Burgers will produce 3.500 mition hamburgers at a total cost of $4.500
ID: 2616553 • Letter: D
Question
Deutsche Burgers will produce 3.500 mition hamburgers at a total cost of $4.500 million. In a good year, In a slow year, It cen produce 4.300 million hamburgers at a total cost of $4.900 miton a What are the tred costs of hamburger productiont mililons rounded to 1 decimal place. (Do not round Intermediete calculations. Enter your answer in milion cost b. What is the variable cost per hamburger? (Do not round Intermedlate declmal places) not round Intermedlate caiculations. Round your answer to 2 per cost c. What is the average cost per burger when the firm produces 2 million hamburgers? (Do not round Intermedlate calculations. Round your answer to 2 decimal places per cost d. What is the average cost per burger when the firm produces 3 miltion hamburgers? (Do not round Intermediate calculations. Round your answer to 2 declmal places) per cost e. Why is the average cost lower when more burgers are produced? The fixed costs are spread across more burgers Variable costs are lower per burger Fixed costs are constant per burgerExplanation / Answer
Solution:
Answer to Question a.
The extra 0.8 million burgers (4.3 million burgers – 3.5 million burgers) increases total costs by $0.3 million ($4.9 million - $4.6 million).
Therefore, Variable Cost = $0.3 million / 0.8 million burgers
= $0.375 per burger
Total Cost = (Total produce * variable cost) + Fixed costs
$4.6 million = (3.5 million burgers * $0.375) + Fixed costs
Fixed Costs = $3.3 million
Answer to Question b.
In part a. we have already calculate variable cost.
Variable Cost = $0.38 per burger
Answer to Question c.
Total Cost = (Total produce * variable cost) + Fixed costs
Total cost = (2 million burgers * $0.38) + $3.3 million
= $4.06 million
Average cost = Total Cost / total production
= $4.06 million / 2 million burgers
= $2.03 per burger
Answer to Question d.
Total Cost = (Total produce * variable cost) + Fixed costs
Total cost = (3 million burgers * $0.38) + $3.3 million
= $4.44 million
Average cost = Total Cost / total production
= $4.44 million / 3 million burgers
= $1.48 per burger
Answer to Question e.
The fixed costs are spread across more burgers, so the average cost falls. That is why the average cost is lower when more burgers are produced.
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