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.
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.)
Average cost $ per burger
b. What is average cost when the firm produces 1 million hamburgers? (Round your answer to 2 decimal places.)
Average cost $ per burger
c. Why is average cost lower when more burgers are produced? Fixed costs are constant per burger. Variable costs are lower per burger. The fixed costs are spread across more burgers. The fixed costs are spread across less burgers.
| 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. |
| 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.) |
| Average cost | $ per burger |
| b. | What is average cost when the firm produces 1 million hamburgers? (Round your answer to 2 decimal places.) |
| Average cost | $ per burger |
| c. | Why is average cost lower when more burgers are produced? | ||||||||
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Related questions
| Emperorâs Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $2.2 million a year, and variable costs are $1.80 per jar. The product will be priced at $2.60 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. |
| a. | What is project NPV under these base-case assumptions? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) |
| NPV | $ million |
| b. | What is NPV if variable costs turn out to be $2.00 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) |
| NPV | $ million |
| c. | What is NPV if fixed costs turn out to be $1.7 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) |
| NPV | $ million |
| d. | At what price per jar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Price | $ per jar |
| Emperorâs Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $3.2 million a year, and variable costs are $2.80 per jar. The product will be priced at $4.10 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 12%, and the tax rate is 30%. |
| a. | What is project NPV under these base-case assumptions? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) |
| NPV | $ million |
| b. | What is NPV if variable costs turn out to be $3.10 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) |
| NPV | $ million |
| c. | What is NPV if fixed costs turn out to be $3 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) |
| NPV | $ million |
| d. | At what price per jar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Price | $ per jar |
