1 Production An economics professor set up a coffee machine

1. Production An economics professor set up a coffee machine in campus. He rent a coffee machine with $100 per month. The ingredients for each cup of coffee cost $5. horizontal axis up to 20) (2) What is the marginal cost? For providing better service, the professor resigned and devoted all himself into the coffee business. He sets the price to $7/cup and sell 50 cups of coffee per month. (3) Do you think he earn a positive/zero/negative profit? Why?

Solution

Total Sale =50

Total Fixed Cost = 100$

Variable Cost = 5$ per cup

Total Variable cost = 5*50 = 250$

Total Cost = Variable cost +fixed cost = 250+100 =350$

Total revenue = 7$*50 = 350.

hence profit = total revenue - total cost = 0$

hence he earns zero profit. however because the professor has left his job, alternative cost of his employement makes the profit negative for the coffee business. hence profit should be considered negative.