a) Mehnaz has already made arrangements for her birthday celebration: she is inv

Question

a) Mehnaz has already made arrangements for her birthday celebration: she is inviting her 7 friends to a dinner party at a famous Montreal restaurant (Mehnaz will pay for everything). The estimated cost of this dinner includes $55 per person for the 3 course meal, as well as 4 bottles of wine at $120 per bottle. However, she has second thoughts now! She is thinking of inviting her friends to her house. Doing so, she needs to hire a catering company that asks for $500 flat fee for a buffet. Wine is not included. She can buy 4 bottles of wine from SAQ at $70 per bottle. Moreover, she will have to cancel reservations at the restaurant and pay a fine of $100 (for late cancelation). What is the marginal cost of her changing her decision?

Explanation / Answer

Cost according to earlier plan: Total people = 7 invitees + mehnaz = 8 3 course meals cost = $55 8 course meals will cost = $ (55x8)/3 = 146.67 4 wine bottles = $120x4 = $480 so, total cost = $626.67 Cost according to new plan: Cost for buffet : $500 4 wine bottles = $70x4= $280 Cancellation fine = $100 so, total cost = $880 Marginal cost = Change in total cost / change in quantity = 253.33 / 1 = $ 253.33 After changing her decision, the marginal cost will be $ 253.33

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