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

Answer 1

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