Reference no: EM132644486

Two business students are considering opening a business selling hamburgers next summer. The students view this as an alternative to taking summer employment with a local firm where they would each earn Br 3,000 during the three-month summer period. It would cost Br 2,000 to obtain a license to operate their stand, Br 1,000 per month to rent the stand with the necessary equipment and Br 100 per month for insurance. Petrol costs are estimated at Br 10 per day. Hamburger meat can be bought for Br 4.00 per kilo and buns cost Br 1.20 per dozen. The burgers would sell in 125-gram patties for Br 1.50 each.

Question a) Find the accounting cost function for the proposed business.

Question b) Find the economic cost function for the proposed business.

Question c) Calculate the level of output where the business would make normal profit.

Question d) Cheese slices for the burgers can be bought for Br 2.40 for twenty slices and it is estimated that 30 per cent of customers would ask for the cheeseburgers, with these selling for Br 1.95. Calculate the effect of this on the output necessary to make normal profit.

If the students can sell 150 burgers a day, 30 per cent with cheese, estimate the economic profit they would make. Advise them whether they should enter the business.