The rent for the campus store is a fixed cost as Robert must pay that rent

# The rent for the campus store is a fixed cost as

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output changes. The rent for the campus store is a fixed cost, as Robert must pay that rent irrespective of how many pizzas Robert sells. Variable costs are not constant and do change with the level of output. Because of this, variable expenses are often stated on a per unit basis. The variable cost per pizza is \$5. For every pizza Robert sells, Robert must spend \$5. Price is how much Robert gets per unit sold. The price here is \$10, as that is how much Robert gets for every pizza he sells. Abhijit Guha
2Suppose we ask the question – assuming Robert sells 10 pizzas, how much profitdoes Robert make? Suppose we ask the question – for Robert, what is break-even number of pizzas? Intuition: Roberts buys a pizza for \$5 (VC), sells a pizza for \$10 (PRICE), so Robert makes \$5 per pizza Robert has incurred rent of \$20 (FC) for the store, he must pay this no matter how many pizzas he sells If Robert sells 4 pizzas, he makes 4 x \$5 = \$20, and so he makes just enough money to cover rent for the store Hence the break-even quantity here is 4 Abhijit Guha