Albert’s Charter Bus Venture (example) Answer: Total Cost = $225 + $20 n. Graph of Total Cost Equation: n Total cost 19 marginal cost -The cost to take one more person average cost – Average cost: the cost per person Avg. Cost = TC/n Avg. Cost = ($225+$20n)/n = $20 + $225/n For n = 30, TC = $885 Avg. Cost = $885/30 = $29.50

Question: Do we have enough information yet to decide how much money Albert will make on his venture? What else must we know?

Albert needs to know his total revenue

Albert knows that similar ventures in the past have charged $35 per person, so that is what he decides to charge

Total Revenue = 35n (for n people)

Total profit =

Total Revenue – Total Cost:

35n – (225 + 20n) = 15n – 225

Question:

How many people does Albert need to break even?

(not lose money on his venture)

Albert plans to charter a bus to take people to see a wrestling match show in Jacksonville. His wealthy uncle will reimburse him for his personal time, so his time cost can be ignored.

Item Cost Item Cost

Bus Rental $80 Ticket $12.50

Gas Expense $75 Refreshments $ 7.50

Other Fuel Costs $20

Bus Driver $50

Total Costs $225.00 Total Costs $20.00

Which of the above are fixed and which are variable costs?

How do we compute Albert’s total cost if he takes n people to Jacksonville?

Albert’s Charter Bus Venture (example)

18

Albert’s Charter Bus Venture (example)

Answer: Total Cost = $225 + $20 n.

Graph of Total Cost Equation:

n

Total cost

19

marginal cost

-The cost to take one more person

average cost

– Average cost: the cost per person

Avg. Cost = TC/n

Avg. Cost = ($225+$20n)/n = $20 + $225/n

For n = 30, TC = $885

Avg. Cost = $885/30 = $29.50