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

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.