Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22.

Required:

Fill in the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity for a coffee stand.

Cups of Coffee Served in a Week
2,000 2,100 2,200
Fixed cost ? ? ?
Variable cost ? ? ?
Total costs ? ? ?
Average cost per cup of coffee served ? ? ?

Answer 1

Answer:

fixed cost : $1,200 $1,200 $1,200

Varaible cost 440 462 484

Total cost 1640 1662 1684

Average cost 0.82 0.79 0.77

Explanation:

Fixed costs are costs that do not vary with output. e,g, rent, mortgage payments

If production is zero or if production is a million, Mortgage payments do not change - it remains the same no matter the level of output.  

Hourly wage costs and payments for production inputs are variable costs

Variable costs are costs that vary with production

If a producer decides not to produce any output, there would be no need to hire labour and thus no need to pay hourly wages.  

Total cost = fixed cost + variable cost

Average cost = total cost / quantity produced