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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. Required: 1. Fill in the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity for a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent. Cups of coffee Served in a week 2,000 2100 2200Fixed Cost ? ? ?Variable Cost ? ? ? Total Costs ? ? ?Average cost per cup of coffee served ? ? ?2. Does the average cost per cup of coffee served increase, decrease, or remain the .same as the of cups of coffee served in a week increases? Explain.

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Answer:

Explanation:

Fixed costs - will remain similar no matter of output amount

Variable costs - vary with the change in output

Average cost=(Fixed cost(FC) + Variable cost(VC))/number of units produced

VC = VC per cup of coffee served *cup of coffee served in a week

Total Cost(TC)= FC+VC

Average cost=TC/Cup of coffee served in a week

1. Let's calculate for 2000 cups of coffee:

FC remain the same! = $1200

VC=0.22*2000= $440

TC=FC+VC= 1200+440= $1640

Average cost of 1 cup of coffee= TC/#of cups=1640/2000=$0.82

2. Calculation for 2100 cups:

FC=1200

VC=0.22*2100=462

TC=1200+462=1662

Av cost=1662/2100=0.79

3. Calculation for 2200 cups:

FC=1200

VC=0.22*2200=484

TC=1200+484=1684

Av cost=1684/2200=0.77

As the number of cups increased from 2000 to 2100, the average cost per cup devreased 0.82 to 0.79. Then when number of cups increased to 2200, average cost decreased to 0.77. The reduction is due to the variable cost

Costs calculation when 2000 cups are served.

Fixed costs =  $1200

Variable cost =  $440

Total cost = $1,640

Average costs = $0.8

Costs calculation when 2100 cups are served.

Fixed costs =  $1200

Variable cost =  $462

Total cost =$1662

Average costs = $0.79

Costs calculation when 2200 cups are served.

Fixed costs = $1,200

Variable cost = $484

Total cost =  $1684

Average costs = $0.77

The average cost per cup decreases as the number of cups served increases. This is as a result of economies of scale.

Description of total cost.

Total cost is the sum of fixed costs and variable costs. Fixed cost is the cost that remains constant regardless of the number of coffees made. Variable costs are the costs that increase with the number of  coffees made. Average cost is the total cost divided by quantity of  coffees made.

Costs calculation when 2000 cups are served.

Fixed costs =  $1200

Variable cost = $0.22 X 2000 = $440

Total cost = $1200 + $440 = $1,640

Average costs =  $1,640 / 2000 = $0.8

Costs calculation when 2100 cups are served.

Fixed costs =  $1200

Variable cost = $0.22 X 2100 = $462

Total cost = $1200 + $462 = $1662

Average costs = $1662 / 2100 = $0.79

Costs calculation when 2200 cups are served.

Fixed costs =  $1,200

Variable cost = 0.22 X 2200 = $484

Total cost = $1200 + $484 = $1684

Average costs = $1684 / 2200 = $0.77

Economies of scale.

Economies of scale is when the average total cost reduces as the output produced increases. This is because the company becomes more efficient as output increases.

To learn more about economies of scale, please check: https://brainly.com/question/780900

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