Four friends are considering operating a sandwich stand in Buena Vista, CA. during their summer college break. This is an alternative to their employment opportunity with a local orange grower where they could earn $7,500 each over the three-month summer period. A fully equipped sandwich facility can be leased at a cost of $8,000 for the summer. Additional projected costs are $3,000 for insurance, and 27¢ per unit for materials and supplies. Their sandwiches would be priced at $1.75 per unit.
A. What is the accounting cost function for this business?
B. What is the economic cost function for this business?
C. What is the economic breakeven number of units for this operation? (Assume a $1.75 price and ignore interest costs associated with the timing of the lease payments.)