Question

in a slow year, Deutsche Burgers will produce 3.800 million hamburgers at a cost of $5.400 million. in a good year, it can produce 5.800 million hamburgers at a total cost of $6.500 million

what is the fixed costs of hamburger production, variable cost per hamburger, an average cost per burger when 3 million burgers are made, an average cost per burger when 4 million are produced?

Answer 1

Total Fixed cost be = X

Variable cost per unit be = Y

----

Total cost = Fixed cost + Variable cost per unit x Y

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Equation for producing 3.800 million hamburgers:

5.4 = X + 3.8Y………. 1

Equation for producing 5.800 million hamburgers:

6.5 = X + 5.8Y……… 2

--- Subtracting 1 and 2

6.5 - 5.4 = (X + 5.8Y) - (X + 3.8Y)

1.1 = 2Y

Y = $0.55 per unit

---- Substitute Y = 0.55 in equation 1 to get X.

5.4 = X + 3.8*0.55

X = Fixed cost = $3.31 million

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Working for Average cost:

Units	Variable cost	Fixed cost	Total cost	Average cost
U	V = U x 0.55	F	TC = V + F	AC = TC/U
3,000,000	1,650,000	3,310,000	4,960,000	1.6533
4,000,000	2,200,000	3,310,000	5,510,000	1.3775