In a slow year, Deutsche Burgers will produce 1 million hamburgers at a total co

Question

In a slow year, Deutsche Burgers will produce 1 million hamburgers at a total cost of $4.5 million. In a good year, it can produce 2 million hamburgers at a total cost of $5.0 million.

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.)

What is average cost when the firm produces 1 million hamburgers? (Round your answer to 2 decimal places.)

In a slow year, Deutsche Burgers will produce 1 million hamburgers at a total cost of $4.5 million. In a good year, it can produce 2 million hamburgers at a total cost of $5.0 million.

Explanation / Answer

Decrease in cost due to increase in no of burgers = Change in cost/ Change in units

= 5-4.5/21 = .5 million per 1 million burger

Cost for .5 million burgers = 4.5/2+.25 = 2.50 million

Average Cost per burger =2500000/500000 $ 5 per burger

2. Cost per burger for if total produce is 1 million burger

= Total Cost/ No of burger = 4500000/1000000 = $4.5 PER BURGER

The average cost per burger decreases because the variable costs are lower per burger and the fixed cost is spread over more burgers.

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