Question
Currently, Corner Lunch Counter sells only Super Burgers for $5.50 each. During a typical month, the Counter reports a profit of $4,850 with sales of
Currently, Corner Lunch Counter sells only Super Burgers for $5.50 each. During a typical month, the Counter reports a profit of $4,850 with sales of $27,500 and fixed costs of $14,400. Management is considering the introduction of a new Super Chicken Sandwich that will sell for $7.00 and have variable costs of $2.50. The addition of the Super Chicken Sandwich will require hiring additional personnel and renting additional equipment. These actions will increase monthly fixed costs by $2,160. In the short run, management predicts that Super Chicken sales will average 3,000 sandwiches per month. However, almost all short-run sales of Super Chickens will come from regular customers who switch from Super Burgers to Super Chickens. Consequently, management predicts monthly sales revenue from Super Burgers will decline $11,000 ( 2,000 units). In the long run, management predicts that Super Chicken sales will increase to 3,600 sandwiches per month and that Super Burger sales will increase to 6,400 burgers per month.
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