Question

A jacket potato vendor charges $4.73 per potato sold. The variable cost of each potato served is $1.05. The stall has a fixed cost of $600 per week.

What is the percentage decrease in unit contribution resulting from the drop in price to $3.00?

Answer 1

To determine the percentage decrease in unit contribution due to the price drop, the original and new contributions were calculated and compared, resulting in a 47.01% decrease.

Step-by-step explanation:

The main answer to the student's question involves calculating the percentage decrease in unit contribution when the price of a jacket potato drops from $4.73 to $3.00. Initially, the contribution per unit is the selling price minus the variable cost, which is $4.73 - $1.05 = $3.68. After the price drop, the new unit contribution is $3.00 - $1.05 = $1.95.To find the percentage decrease, we use the formula: ((original contribution - new contribution) / original contribution) * 100. Substituting the values gives us (($3.68 - $1.95) / $3.68) * 100 = 47.01%. Thus, there is a 47.01% decrease in unit contribution as a result of the drop in price to $3.00.