Reference no: EM132089116

Question - Mark Twain recently opened Mark's Brew Pub in the University District. Because of licensing restrictions, the only liquor he can sell is beer. The average price of beer at Mark's Brew Pub is $3.00 per glass, and each glass costs Mark an average of $2.20. Mark has hired a bartender and waiter at $3,000 and $2,000 per month, respectively. His rent, utilities, and other fixed operating costs are $5,000 per month.

Mark is considering selling hamburgers during the lunch hour. He would like to sell the burgers for $1.25 each. Mark can buy buns for $1.20 per dozen and ground beef for $2.80 per pound. Each pound of ground beef will make 7 burgers. Other ingredients will cost $0.20 per burger. Mark will also need to hire a part-time cook at $1,200 per month.

Other additional fixed costs will run about $340 per month.

REQUIRED:

a. If Mark sells only beer, how many glasses of beer does he have to sell each month to make a monthly profit of $2,000?

b. Suppose Mark decides to add hamburgers to his menu. How many hamburgers does he need to sell to break even on the hamburgers? Assume there is no effect on beer sales.

c. Mark was not sure how many new customers would be attracted by the hamburgers. Give Mark some advice about how many new customers would be needed to just break even on the new business if each new customer bought one hamburger and one beer.