Question

A large chicken processing plant has been demolished and the price of chicken has doubled. If all other expenses remain the same, how many customers must Markolini serve to break even?

Answer 1

To break even after the price of chicken has doubled, Markolini needs to serve half the number of customers compared to before.

Step-by-step explanation:

To break even after the price of chicken has doubled, Markolini must serve enough customers to cover the increased costs. In this case, the expenses from the demolished chicken processing plant are considered fixed costs because they do not change with the number of customers served. The break-even point is reached when the revenue from sales equals the total costs.

Let's assume the price of chicken was $1 before the plant was demolished. If the price doubles to $2, Markolini needs to sell twice as many chickens to break even. This is because the revenue from each chicken sold has increased, so Markolini can cover the fixed costs with a smaller quantity of chickens sold.

Let's denote the number of customers Markolini needs to serve to break even as 'X'. If Markolini sells 1 chicken to 1 customer at $1 each, the revenue would be $1X. However, if the price doubles to $2 per chicken, Markolini only needs to sell 0.5X chickens to reach the same revenue of $1X. Therefore, Markolini must serve half the number of customers to break even when the price doubles.

Answer 2

This scenario centers on a crucial business decision, employing cost analysis to assess the sustainability of ongoing operations. At $2.00 per pack, the operation continues, but at $1.50, increased losses favor shutting down, reflecting a consistent decision-making approach in different scenarios.

Step-by-step explanation:

The question revolves around making business decisions based on cost analysis.

Specifically, it deals with the concept of shutting down or continuing operation based on the comparison between variable costs and revenues.

In the scenario described, a farm considers the profitability of producing raspberries at different prices.

When the price is $2.00 per pack, the operation loses $47.45, which is less than the fixed cost of $62.00, meaning it's better to keep operating.

When the price drops to $1.50 per pack, the losses increase to $75, exceeding the fixed costs, so shutting down becomes the preferable option.

A similar principle applies to another example where a center earns $10,000 in revenues but has $15,000 in variable costs, and also faces a decision whether to shut down to avoid further losses, only incurring fixed costs of $10,000.