You and your friend have two choices of summer employment Fi

You and your friend have two choices of summer employment. First choice is to open a hot dog stand in the Indiana Dunes area. Your second alternative is to do summer internship as an economic analyst where each of you would earn $4000 over the three-month summer period. The rental rate for a hot dog stand is $1000 per month with a mandatory insurance of $50 per month. You materials and supplies cost $0.25 per hot dog. You have decided to sell each hot dog for $1.25. A. What is the accounting cost function for this business? B. What is the economic cost function for this business? C. What is the economic breakeven number of units for this operation? Multiple Choice a) $3150 $0.250 b) $7150+$0.25 Q c) 7150 units a) $3150 + $0.25 Q b) $11, 150+$0.25Q c)11, 150 units a) $3150 + $0.25 Q b) $7150+$0.25 Q c)7150 units a) $3,150 + $0.25 Q b) $7, 150+$0.25Q 11,150

Solution

Solution: Option-2

Working:

Accounting cost: 1000*3 + 50 *3 + 0.25X = 3150 + 0.25X

Economic cost = 3150 + 0.25X + (4000 * 2 person) = 11,150 + 0.25X

Break even point:

1.25X = 11,150 + 0.25X

X = 11,150 which is breake even point