Rent (Binding 20-Year Lease) $1,000 Per Week Sales $2,000 Per Week Raw Material Cost $1,000 Per Week Value of Your Own Labor $500 Per Week
As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Question

Quizplus · Accepted Answer

The company's total costs are:

- Fixed costs: Rent = $1,000 per week
- Variable costs: Raw material cost + Value of your own labor = $1,500 per week

The total revenue from sales is $2,000 per week, which is greater than the total variable costs of $1,500 per week. This means that the company is making a positive contribution margin ($500 per week) towards covering its fixed costs.

In the short run, it is best for the company to continue operating since the contribution margin is positive and the company is not losing money overall. However, in the long run, the owner may want to consider ways to increase sales or reduce variable costs in order to increase profits.