Business

Question

In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay) from her $5,000 per month job in order to operate a kiosk that sold fresh drinking water. During the month she operated this venture the entrepreneur paid the government $2,500 in kiosk rent and purchased water from a local wholesaler at a price of $1.34 per gallon. If consumers were willing to pay $2.25 to purchase each gallon of fresh drinking water, how many units did she

1 Answer

  • Answer:

    See below

    Explanation:

    With regards to the above,

    Implicit cost + Explicit cost = 5,000(loss of salary) + $2,500(kiosk rent) = $7,500

    Total variable cost = $1.34 × Q

    Cost function = C(Q) = 7,500 + 1.34 * Q

    Total revenue = R(Q) = Price * Quantity = $2.25 * Q

    Profit = TR - TC = $2.25 * Q - 7,500 - 1.34Q

    = $0.91Q - 7,500

    Here,

    Entrepreneur will only make profit where

    0.91Q > 7,500

    Q = 8,241.7

    She needs to have 8,241.7 at least in order to turn a profit

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