Matt owns a donut shop. He rents a space for $1500 a month and pays his only employee $300 a month. Matt can serve 1000 donuts each month. His variable cost per donut is $2. what price does Carlos need to charge in order to make a profit of $2000 per month? A. $3.80 B. $5.80. and why?
Boy. those are expensive donuts. And what a strange demand curve Matt faces.
Use algebra. Total costs are 1500+300+(2*1000) = $3800.
If he manages to sell hs 1000 donuts for 5.80 each, total revenue is $5800 giving him a $2000 cash profit.
To find out the price Carlos needs to charge in order to make a profit of $2000 per month, we can use the following equation:
Total Revenue - Total Cost = Profit
We already know the Total Cost is $3800:
Total Cost = $1500 (rent) + $300 (employee) + ($2 * 1000) (variable cost per donut * number of donuts)
Total Cost = $1500 + $300 + $2000 = $3800
Now, we need to calculate the Total Revenue. Since Carlos can sell 1000 donuts each month, we can multiply the number of donuts by the price per donut:
Total Revenue = Number of Donuts * Price per Donut
Total Revenue = 1000 * Price per Donut
Now, we can substitute the values in the equation:
Total Revenue - Total Cost = Profit
1000 * Price per Donut - $3800 = $2000
Rearranging the equation to isolate the Price per Donut:
1000 * Price per Donut = $2000 + $3800
1000 * Price per Donut = $5800
Dividing both sides by 1000:
Price per Donut = $5800 / 1000
Price per Donut = $5.80
Therefore, Carlos needs to charge $5.80 for each donut in order to make a profit of $2000 per month. The correct option is B. $5.80.