Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22.

1. Does the average cost per cup of coffee served increase, decrease, or remain the same as thenumber of cups of coffee served in a week increases?

Answer 1

Average cost per cup decreases as the number of cups of coffee served in a week increases.

Step-by-step explanation:

Average cost is defined as total cost incurred per unit of output.

Also, average cost is the sum total of average fixed and average variable cost.

AC = AFC + AVC

wherein,

AC = Average Cost

AFC= Average Fixed Cost which is total fixed cost divided by no of units produced

AVC= Average Variable Cost which is total variable cost divided by no of units produced.

FIxed cost remain the same at all levels of output , hence average fixed cost reduces as more and more units of a output are produced.

Variable cost refers to those costs which vary or change with the level of output produced.

Since average variable cost will remain the same and average fixed cost decreasing as more and more cups of coffee are served, it leads to a fall in the average cost.