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You are the owner of a fast food restaurant. Given a new item that you recently...

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cllawrence | Honors

Posted July 20, 2013 at 12:48 AM via web

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You are the owner of a fast food restaurant. Given a new item that you recently advertised, you experience additional demand for your business that you do not want to ignore. Identify your fixed and variable costs at your fast food restaurant, and explain the changes to each of these costs, given the increased demand.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 20, 2013 at 1:59 AM (Answer #1)

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In your fast food restaurant, you will have both fixed costs and variable costs.  When the demand for your fast food increases, your fixed costs will not change, but your variable costs will change.

Fixed costs are those costs that do not change regardless of how much demand there is for a product.  In the context of the fast food restaurant, one major example of this is the rent for the building in which you have your restaurant.  You have to pay the same amount of rent whether you sell millions of hamburgers or none at all.

Variable costs are those costs that change when you sell more of your product.  In the context of the fast food restaurant, these are things like the ingredients for your food.  When you sell more hamburgers, you will have to buy more meat and buns.  When you sell more food, you will also have to pay workers more to do the extra work.  These are your variable costs.

So, when demand for your product rises, your fixed costs, such as rent, will not change but your variable costs will.

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