Costs, revenue and profit of the firm

The coffee shop "El Rincón" has the following costs: premises rent, coffee beans, fixed salary of the waiter, cardboard cups, monthly fee for the card payment terminal, and napkins. Classify them into fixed costs (they exist even if no one comes) and variable costs (they increase with every coffee sold), and explain what happens to each group in August when the neighbourhood is empty.

The 'Rizos' hairdresser's pays: the rent of the premises, the dyes and shampoos it uses with each customer, the hairdresser's fixed wage, the water and electricity (which rise with every wash), the insurance premium and the disposable towels.

1. a) Classify each cost as fixed or variable.
2. b) Explain what happens to profits in a quiet January, when fixed costs are still there but variable ones fall.

Define total revenue, total cost, and profit, and calculate them in this case: at the market, Julia sells $40$ bracelets at $3\ \text{€}$ each; the materials for each bracelet cost her $0,50\ \text{€}$ and the stall cost $20\ \text{€}$. How much revenue does she take in, how much does she spend, and how much profit does she make?

Explain the difference between high turnover and high profit with this case: shop A sells $10.000\ \text{€}$ a month with costs of $9.500\ \text{€}$; shop B sells $4.000\ \text{€}$ with costs of $3.000\ \text{€}$.

1. a) Calculate each one's monthly profit.
2. b) Which one 'moves' more money and which one is more profitable? Say which you would rather own and justify it.

The figure shows the total revenue (green line) and total costs (red line) of Nayara's group's T-shirt stall, based on the number of T-shirts sold. Each T-shirt is sold for $3\ \text{€}$, the materials for each cost $1\ \text{€}$, and the fixed costs of the stall are $60\ \text{€}$.

1. a) Do the calculations to find how many T-shirts must be sold for total revenue and total costs to be equal, and explain what the point marked with the question mark represents.
2. b) Explain what happens on the graph to the left and to the right of that point (where there are losses and where there are profits) and what would happen to the point if fixed costs increased.

The food truck "El Perrito Viajero" sells each hot dog for $5\ \text{€}$; the roll, sausage, and ingredients cost $2\ \text{€}$ per hot dog, and the monthly fixed costs (insurance, permits, fuel) are $600\ \text{€}$.

1. a) Calculate the profit if it sells $250$ hot dogs.
2. b) Calculate how many hot dogs it needs to sell per month to avoid losing money.
3. c) To attract customers, it is considering lowering the price to $4\ \text{€}$: calculate the new break-even point and advise whether this move could work out well or badly.

At the 'Trigo y Miel' bakery, each loaf sells at $1,30\ \text{€}$ and the ingredients cost $0,50\ \text{€}$; fixed expenses are $1.600\ \text{€}$ a month.

1. a) Calculate how many loaves must be sold a month to cover costs.
2. b) The price of flour rises and the cost per loaf goes up to $0,60\ \text{€}$: calculate the new break-even point.
3. c) Explain why a small rise in the variable cost moves the number of loaves needed so much.

The price of a product doesn't come out of nowhere: the shop adds up its costs and adds a margin. At the bookshop, a notebook costs $4\ \text{€}$ to buy in and sells at $6\ \text{€}$.

1. a) Calculate the margin per notebook and explain what that margin is for (paying the fixed costs and, if anything is left, making a profit).
2. b) Explain two reasons why the same notebook can have different prices in two shops.

The artisan bakery buys flour in sacks at $0,80\ \text{€}$ a kilo; if it buys a whole pallet, the kilo drops to $0,60\ \text{€}$. Each loaf takes $0,3$ kg of flour and it produces $3.000$ loaves a month.

1. a) Calculate how much flour it uses a month and how much it would save by buying the pallet.
2. b) Explain why producing on a large scale usually cheapens the cost per unit (economies of scale) and give another example from your neighbourhood.

The stationer's "El Tintero" sells $100$ backpacks a month for $25\ \text{€}$ each; each backpack costs $12\ \text{€}$ from the supplier, and its fixed costs are $1.040\ \text{€}$ per month. The owner is considering lowering the price to $22\ \text{€}$ and believes that doing so would increase sales to $150$.

1. a) Calculate the current profit.
2. b) Calculate the expected profit with the discount and decide whether it is worthwhile.
3. c) Calculate how many backpacks it would need to sell at $22\ \text{€}$ to make exactly the same profit as now, and assess the risk of the discount if sales do not rise as much as expected.