Question

In: Economics

Julio Fernandez runs a small business specializing in delivering organic fruit and vegetables to the local...

Julio Fernandez runs a small business specializing in delivering organic fruit and vegetables to the local area. He buys from local farms and packages these together in boxes and delivers them locally. Each box is sold for $12. He has the following costs:  Direct wages are $9 per hour (30 minutes per box on average) Fruit and vegetables are $4 per box  Other fixed costs incurred each year for this business are as follows: o Rent of Delivery Van: $4500 o Rent of Premises: $10500 o Advertising: $2000

i. Calculate the marginal cost of producing one box of vegetables. (5 points)

ii. Calculate the break-even point in boxes (unit) (5 points)

Solutions

Expert Solution

a.

Marginal cost of producing 1 box = 4 + 9/2 = 4 + 4.5 = 8.5

b.

Let breakeven volume be n boxes, then

TC = 2000+ 4500 + 10500 + 8.5*n = 17000 + 8.5*n

TR = 12*n

For breakeven, TR = TC

17000 + 8.5*n = 12*n

n = 17000 / 3.5 = 4857.14 ~ 4858

Rahul Sunny answered 2 years ago
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