Question

This module has focused on different business costs. For this week’s paper, go to your local grocery store and price the ingredients for baking chocolate chip cookies. For simplicity, assume the ingredients for three dozen cookies are: One 16 oz. box of sugar = $0.62 One 12 oz. bag of chocolate chips = $2.89 One 2 lb. bag of flour = $0.99 One dozen eggs = $1.39 A fixed cost of $30 to rent a kitchen with an oven for a day Assume in an hour you can bake two dozen cookies and that the cost of your time is $10 an hour.

Calculate the average total cost, average variable cost, average fixed cost, and marginal cost for baking one dozen, two dozen, three dozen, four dozen, five dozen, six dozen, seven dozen, eight dozen, nine dozen, and ten dozen cookies.

Show your work for the calculations and create a table with just cost numbers. Create the graphs for each of the cost numbers. Graph them on the same graph. Recalculate the costs assuming the cost to rent the kitchen with an oven dropped to $15. Compare the new calculations with the old calculations.

Answer 1

Answerr:

The table with filled columns:

Q (Doz)	FC	VC	TC	Q (Doz)	ATC	AVC	AFC	MC
1	30	6.96	36.96	1	36.96	6.96	30
2	30	13.92	43.92	2	21.96	6.96	15	6.96
3	30	20.88	50.88	3	16.96	6.96	10	6.96
4	30	27.84	57.84	4	14.46	6.96	7.5	6.96
5	30	34.8	64.8	5	12.96	6.96	6	6.96
6	30	41.76	71.76	6	11.96	6.96	5	6.96
7	30	48.72	78.72	7	11.25	6.96	4.29	6.96
8	30	55.68	85.68	8	10.71	6.96	3.75	6.96
9	30	62.64	92.64	9	10.29	6.96	3.33	6.96
10	30	69.6	99.6	10	9.96	6.96	3	6.96

Calculations:

a. Fixed cost: $30 is the fixed cost as no matter how many dozens cookies she makes, she has to incur this rent.

b. Variable cost: Incurred per 3 dozens :

One 16 oz. box of sugar = $0.62

One 12 oz. bag of chocolate chips = $2.89

One 2 lb. bag of flour = $0.99

One dozen eggs = $1.39

Total = $ 5.89 for 3 dozen. Therefore for 1 dozen = 5.89/ 3 = $ 1.96

wage = $10 for 2 hours (for 2 dozens). Therefore for 1 dozen, wage = 10/ 2 = $5

Variable cost = material + wage = 1.96 + 5 =$ 6.96

c. Total cost = Fixed cost + variable cost. For quantity = 1 dozen, TC = 30 + 6.96 = 36.96

d. ATC = Total cost / quanity For quantity = 1 dozen, ATC = 36.96/ 1 =36.96

e. AFC = Fixed cost / quantity. For quantity = 1 dozen, AFC = 30/ 1 = 30

f. AVC = Variable cost / quantity. For quantity = 1 dozen, AVC = 6.96/ 1 = 6.96

MC = Change in TC/ change in quantity. For quantity = 2 dozen, MC = (43.92 - 36.96)/ (2-1) = 6.96/ 1 = 6.96

The graph:

The changed table with fixed cost $15:

Q (Doz)	FC	VC	TC	Q (Doz)	ATC	AVC	AFC	MC
1	15	6.96	21.96	1	21.96	6.96	15
2	15	13.92	28.92	2	14.46	6.96	7.5	6.96
3	15	20.88	35.88	3	11.96	6.96	5	6.96
4	15	27.84	42.84	4	10.71	6.96	3.75	6.96
5	15	34.8	49.8	5	9.96	6.96	3	6.96
6	15	41.76	56.76	6	9.46	6.96	2.5	6.96
7	15	48.72	63.72	7	9.10	6.96	2.14	6.96
8	15	55.68	70.68	8	8.835	6.96	1.88	6.96
9	15	62.64	77.64	9	8.63	6.96	1.67	6.96
10	15	69.6	84.6	10	8.46	6.96	1.5	6.96

The graph with fixed cost of $15:

Comparison of values of the two tables:

Only FC changes. VC, AVC and MC remain the same But FC, AFC, and ATC change.

ATC AVC MC AFC 4 10 12

ATC AVC MC AFC 024 68 ATC AVC — AFC — MC 10 12