Molly needs to look at the cost of her coffee ingredients. She determined that h

Question

Molly needs to look at the cost of her coffee ingredients. She determined that her fixed costs are 20 Cents per cup for her fixed cost per hour to cover light, utilities and rent. Add a column to the amended graph and show a fixed expense column and create a new graph. Choose wherever you think the column looks best.

Costs Price of Espressos is $2.00 Ted’s hourly wages $11.00 List the Variables Ted is a no show 100 cups Ted works one hour 130 cups Ted works two hours 154 cups Ted works three hours 172 cups Ted works four hours 184 cups Ted works 5 hours 190 cups Ted works six hours 193 cups

Do the addition of these costs and modifications affect the Marginal benefit of Ted working, why or why not.

Your per cup costs measure the use of expendable resources, such as coffee grounds used once and the discarded. The more cups you sell the more coffee you use. This is a variable cost. Add a column to the previously expanded graph to include Ted’s new wage, and the hourly fixed costs.

When is it time to send Ted home? At how many cups (approximately) is his labor no longer needed to increase sales.

Explanation / Answer

Working notes:

(a) Marginal benefit = Change in Profit / Change in number of hours where

(b) Total cost (TC) = Fixed cost (F) + Variable cost (VC)

= $0.2 x Q + $11 x L where L: Number of hours

(c) Profit = TR - TC where

TR = P x Q = $2 x Q

So, Ted should be sent home after he works 4 hours, since after that marginal benefit become negative. When L = 4, number of cups = 184.

L Q TR TC Profit Marginal benefit 0 100 200 20 180 1 130 260 37 223 43 2 154 308 52.8 255.2 32.2 3 172 344 67.4 276.6 21.4 4 184 368 80.8 287.2 10.6 5 190 380 93 287 -0.2 6 193 386 104.6 281.4 -5.6

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