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Suppose that you and a friend have started a pizza delivery business. First you had to find a shop front to make the pizzas and this costs $20,000 per year plus set up costs of $45,000 for the oven and kitchen set up. You estimate that the daily costs of labour will be $300; the costs of making a pizza is around $2.50 each and delivery is around $2 per pizza.
Problem a) Calculate the fixed costs of this business. If you use your combined savings to pay these costs what is the estimated implicit cost of starting the business in the first year if the interest rate is 4% per year.
Problem b) If you can make and deliver 300 pizzas per day calculate the variable cost of a single delivered pizza.
Problem c) What is the marginal cost of a delivered pizza?
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