Question

Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. a. If Marah decides to open the lemonade stand, how much profit will she earn? $ −5 b. Based on this information, Marah should open the lemonade stand. c. The $10 spent on the sign represents a sunk cost.

Answer 1

Marah expects $20 in revenue from selling lemonade but has $25 in total costs, leading to a $5 loss, hence she should not open the stand. The $10 spent on the sign is a sunk cost and does not impact this decision.

Step-by-step explanation:

Marah is considering opening a lemonade stand and has estimated her expected revenues and costs. To calculate net profit, we must subtract the total costs from the total expected revenue from selling lemonade.

Her expected revenue will be 20 cups sold at $1 each, totaling $20. The costs incurred comprise of the sunk cost of the $10 sign and additional variable costs of $15 for cups and lemonade mix. Therefore, the total costs amount to $10 + $15 = $25.

To find the profit, we subtract total costs from total revenue which yields $20 - $25 = -$5. This indicates a loss rather than a profit.

Based on the information presented, Marah should not open the lemonade stand as it will lead to a net loss. The $10 already spent on the sign represents a sunk cost, which shouldn't affect her decision to open the stand as it can't be recovered.

Answer 2

Step-by-step explanation:

given data:

lemonade to be sold = 20cups at $20.

cost of sign post = $10.

cost of cup and lemonade mix = $15.

A. Marah profit from the venture would be

= Sales made – Total cost

= $20 – $25

= –$5.

B. Based on the information above Marah should forget about Opening the lemonade stand as she would be running at a loss of $5.

C. The $10 spent on the sign is a sunk cost because it cannot he recovered after it has been spent.