BBA2501UnitVAssignment

Running head: RUBY RED CONCESSION STAND ANALYSIS 1 Ruby Red Concession Stand Analysis Columbia Southern University Principles of Microeconomics Doctor Abdulhamid Sukar March 23, 2021

RUBY RED CONCESSION STAND ANALYSIS 2 Ruby Red Concession Stand Analysis The main goal of any business is to stay open for business. Tracy, the manager at Ruby Red Movie Theater, is extremely worried about concession stand sales. Tracy has indicated that she is at a loss regarding how many employees should be working in the concession stand area and how many concession stand items should be sold per day. Tracy is even considering closing the concession stand area. My assignment is to help Tracy figure out the optimal number of workers and the number of items that should be sold daily to keep the concession stand open. The table in the appendix shows the financial data related to the number of concession stand items produced by different amounts of workers per day. The data that was given was the output, number of workers per day, the price per worker per day, the total fixed costs per day, and the average price per concession stand item. The other figures were calculated. The total variable cost of labor is what the total cost is for paying all of the workers . It is found by multiplying the cost per worker per day by the number of workers. The total cost per day is the total of the fixed costs per day, which are the costs associated with the business that is not related to the firm’s rate of output, and the total cost of labor. It is found by adding the total fixed cost per day to the total variable cost per day. Total revenue is how much money the company brought in during the day. It is computed by multiplying the average cost per concession stand item by the total output for the day. The profit is how much money the company actually made during the day. It is found by taking the total revenue received during the day and subtracting the total costs of the day. Of special interest to any firm is how total cost changes as output changes, especially the marginal cost of producing another unit (McEachern, 2019). The marginal cost is obtained by dividing the difference in the total cost per day for two consecutive amounts of workers by the

RUBY RED CONCESSION STAND ANALYSIS 4 a day. If the theatre continued to have two workers producing 100 items per day, it would be forced to shut down the concession stand. The goal of every business is to maximize its profits. In this case, Ruby Red Theatre wants to know how many employees it should have producing what quantity of items to maximize its concession stand profit. There are two ways to know this. One way is to look at the table and see where the maximum profit is witnessed. In this case, the maximum profit is witnessed by 16 workers producing 1,250 items or 18 workers producing 1,280 items to make a profit of $6,080 per day. However, to maximize profits, the marginal revenue must equal the marginal cost at the particular level. In this case, the marginal revenue of $8.00 equals the marginal cost of $8.00 when 18 workers are producing 1,280 items. Therefore, to maximize its concession stand profits, Ruby Fred Theatre should have 10 concession stand workers producing 1,280 items per day.

RUBY RED CONCESSION STAND ANALYSIS 5 Reference Columbia Southern University, (n.d.). Unit V study guide: Costs in the firm. Retrieved from https://learn-us-east-1-prod-fleet02-xythos.content.blackboardcdn.com/5f85d6ea5857f/ 10557672?X-Blackboard-Expiration=1616533200000&X-Blackboard- Signature=yemusxFmUPJgVX%2B2YZhpoTE4y6eH2BxnRnuncMx%2F%2BGw %3D&X-Blackboard-Client-Id=100887&response-cache-control=private%2C%20max- age%3D21600&response-content-disposition=inline%3B%20filename%2A%3DUTF- 8%27%27UnitV.pdf&response-content-type=application%2Fpdf&X-Amz- Algorithm=AWS4-HMAC-SHA256&X-Amz-Date=20210323T150000Z&X-Amz- SignedHeaders=host&X-Amz-Expires=21600&X-Amz- Credential=AKIAZH6WM4PL5SJBSTP6%2F20210323%2Fus-east- 1%2Fs3%2Faws4_request&X-Amz- Signature=3ec764d981dcd0cf0863a5072e42087f6d3df044e87377300c8f7cbd28243c7d McEachern, W. A. (2019). Micro ECON6: Principles of microeconomics . Cengage Learning. https://online.vitalsource.com/#/books/9781337671828

RUBY RED CONCESSION STAND ANALYSIS 7 Round These Answers to the Nearest Whole Number Round These Answers to the Nearest Penny Output (Concession Stand Items) Number of Workers Employed Per Day Price of Labor Per Worker Per Day Total Variable Cost of Labor Total Fixed Costs Per Day Total Cost Per Day Average Price of Concession Stand Items Total Revenue Profit Average Variable Cost Average Fixed Cost Average Total Cost Marginal Cost Marginal Revenue 0 0 $120 $0 $2,000 $2000 $8.00 $0 -$2000 --- --- --- --- $8.00 100 2 $120 $240 $2,000 $2240 $8.00 $800 -$1440 $2.40 $20.00 $22.40 $2.40 $8.00 400 4 $120 $480 $2,000 $2480 $8.00 $3200 $720 $1.20 $5.00 $6.20 $0.80 $8.00 750 6 $120 $720 $2,000 $2720 $8.00 $6000 $3280 $0.96 $2.67 $3.63 $0.69 $8.00 900 8 $120 $960 $2,000 $2960 $8.00 $7200 $4240 $1.07 $2.22 $3.29 $1.60 $8.00 1,025 10 $120 $1200 $2,000 $3200 $8.00 $8200 $5000 $1.17 $1.95 $3.12 $1.92 $8.00 1,125 12 $120 $1440 $2,000 $3440 $8.00 $9000 $5560 $1.28 $1.78 $3.06 $2.40 $8.00 1,200 14 $120 $1680 $2,000 $3680 $8.00 $9600 $5920 $1.40 $1.67 $3.07 $3.20 $8.00 1,250 16 $120 $1920 $2,000 $3920 $8.00 $10000 $6080 $1.54 $1.60 $3.14 $4.80 $8.00 1,280 18 $120 $2160 $2,000 $4160 $8.00 $10240 $6080 $1.69 $1.56 $3.25 $8.00 $8.00 1,290 20 $120 $2400 $2,000 $4400 $8.00 $10320 $5920 $1.86 $1.55 $3.41 $24.00 $8.00 1,289 22 $120 $2640 $2,000 $4640 $8.00 $10312 $5672 $2.05 $1.55 $3.60 -$240.00 $8.00 1,280 24 $120 $2880 $2,000 $4880 $8.00 $10240 $5360 $2.25 $1.56 $3.81 -$26.67 $8.00

RUBY RED CONCESSION STAND ANALYSIS 8 Questions: Use your responses to these questions to help you formulate ideas for writing your Unit V Essay. Question 1: What is the level of profit that is made by Ruby Red Movie Theater if 2 workers are employed at the concession stand and only 100 items of output are produced (sold) at the concession stand? Answer: The level of profit made by Ruby Red Movie Theatre Theater if 2 workers are employed at the concession stand and only 100 items of output are produced (sold) is a negative $1440. Question 1a: Should Ruby Red Movie Theater continue to operate the concession stand if only 100 concession stand items are being produced (sold) by 2 workers? Why, or why not? Answer: Ruby Red Movie Theatre should not continue to operate the concession stand if only 100 concession stand items are being produced (sold) by 2 workers. The reason is that they are losing money and will continue to lose money with this situation. Question 2: If Ruby Red Movie Theater wanted to produce (sell) 1,290 items from the concession stand, would profit be maximized? Why, or why not? Answer: If Ruby Red Movie Theater wanted to produce (sell) 1,290 items from the concession stand, profit would not be maximized. The maximum profit is witnessed when 1250 items are produced by 16 people or 1280 items by 18 people. Question 3: At what level of output and labor input are concession stand profits maximized for Ruby Red Movie Theater? What are two ways you could tell if this was correct from the table data? Answer: The maximum profit is witnessed when 1280 items by 18 people. One way you can tell is that the profit of $6080 at this level is the highest profit witnessed. The other way to tell is that the marginal revenue equals the marginal cost at this level.