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Running head: RUBY RED CONCESSION STAND ANALYSIS
1
Ruby Red Concession Stand Analysis
Columbia Southern University
Principles of Microeconomics
Doctor Abdulhamid Sukar
March 23, 2021
RUBY RED CONCESSION STAND ANALYSIS
2
Ruby Red Concession Stand Analysis
The main goal of any business is to stay open for business. Tracy, the manager at Ruby Red Movie Theater, is extremely worried about concession stand sales. Tracy has indicated that she is at a loss regarding how many employees should be working in the concession stand area and how many concession stand items should be sold per day. Tracy is even considering closing the concession stand area. My assignment is to help Tracy figure out the optimal number of workers and the number of items that should be sold daily to keep the concession stand open. The table in the appendix shows the financial data related to the number of concession stand items produced by different amounts of workers per day. The data that was given was the output, number of workers per day, the price per worker per day, the total fixed costs per day, and the average price per concession stand item. The other figures were calculated. The total variable cost of labor is what the total cost is for paying all of the workers . It is found by multiplying the cost per worker per day by the number of workers. The total cost per day is the total of the fixed costs per day, which are the costs associated with the business that is not related to the firm’s rate of output, and the total cost of labor. It is found by adding the total fixed cost per day to the total variable cost per day. Total revenue is how much money the company brought in during the day. It is computed by multiplying the average cost per concession stand item by the total output for the day. The profit is how much money the company actually made during the day. It is found by taking the total revenue received during the day and subtracting the total costs of the day.
Of special interest to any firm is how total cost changes as output changes, especially the marginal cost of producing another unit (McEachern, 2019). The marginal cost is obtained by dividing the difference in the total cost per day for two consecutive amounts of workers by the
RUBY RED CONCESSION STAND ANALYSIS
3
difference in output by these same two amounts of workers. Marginal revenue is equal to the price of the output under perfect competition (Columbia Southern University, n.d.). The marginal
revenue is calculated by dividing the difference in total revenue obtained by two consecutive outputs by the difference in these outputs. Although marginal cost is of most interest, the average cost per unit of output is also useful (McEachern, 2019). These are all average costs based on the total output for the day. The average variable cost is calculated by dividing the average cost of labor per day by the output for the day. The average fixed cost is calculated by dividing the total fixed cost for the day by the output for the day. The average total cost is calculated by dividing the total cost for the day by the output for the day. For any firm to stay open it must have enough revenue to cover the costs of operating the business in the short run. If it does not, it could be forced to shut down. There are two types of cost in the short run, which are fixed and variable. Fixed cost is any production cost that is independent of the firm’s rate of output and variable cost is any production cost that changes as the rate of output changes (McEachern, 2019). These two add up to the total cost of running the business in the short run. In the case of Ruby Red Theatre, the question is not the entire business but just the concession stand. If the concession stand has two workers producing 100 items per day, the total cost is $2,240. This includes the fixed cost of $2,000 per day plus the variable cost of paying two
workers $120 per day each which totals $240.00. However, at an average price of $8.00 per item,
100 items only brings in $800 of revenue. This means that the concession stands loses $1,440 per
day. However, at 4 workers per day producing 400 items, the concession stand would make $720
RUBY RED CONCESSION STAND ANALYSIS
4
a day. If the theatre continued to have two workers producing 100 items per day, it would be forced to shut down the concession stand.
The goal of every business is to maximize its profits. In this case, Ruby Red Theatre wants to know how many employees it should have producing what quantity of items to maximize its concession stand profit. There are two ways to know this. One way is to look at the table and see where the maximum profit is witnessed. In this case, the maximum profit is witnessed by 16 workers producing 1,250 items or 18 workers producing 1,280 items to make a profit of $6,080 per day. However, to maximize profits, the marginal revenue must equal the marginal cost at the particular level. In this case, the marginal revenue of $8.00 equals the marginal cost of $8.00 when 18 workers are producing 1,280 items. Therefore, to maximize its concession stand profits, Ruby Fred Theatre should have 10 concession stand workers producing 1,280 items per day.
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