## Related questions with answers

You are thinking about setting up a lemonade stand. The stand itself costs $\$ 200$. The ingredients for each cup of lemonade cost $\$ 0.50$.

a. What is your fixed cost of doing business? What is your variable cost per cup?

b. Construct a table showing your total cost, average total cost, and marginal cost for output levels varying from $0$ to $10$ gallons. (Hint: There are $16$ cups in a gallon.) Draw the three cost curves.

Solution

Verifieda) As previously stated, fixed costs will be the same throughout all
stages of production. We can easily conclude that the fixed cost of
$\$200$ will be the same throughout all stages. On the other hand, we
must calculate variable costs that are determined by the amount of
output produced by a firm.

Each cup of lemonade costs $\$0.50$ in ingredients. and there are 16
cups in 1 gallon, so to calculate variable cost, multiply $\$0.50$ by
16.

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