A restaurant is considering adding fresh brook trout to its menu. Customers woul

Question

A restaurant is considering adding fresh brook trout to its menu. Customers would have the choice of catching their own trout from a simulated mountain stream or simply asking the waiter to net the trout for them. Operating the stream would require $9 600 in fixed costs per year. Variable costs are estimated to be $6.60 per trout. The firm wants to break even if 800 trout dinners are sold per year. What should be the price of the new item? $ nothing. (Enter your response rounded to the nearest penny.

Explanation / Answer

Break even point(BEP) = 800 trout dinners

Fixed cost (FC) = $9600

Variable cost (VC) = $6.60

Let price of the new item = P

BEP = FC/ (P-VC)

=> 800 = 9600 / (P-6.60)

=> P-6.60 = 9600/800

=> P-6.60 = 12

=> P = 12+6.60

=> P = 18.60 or 19

So the price of the new item should be $19

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