Charlie’s Coffee Cabana has total fixed costs of $400 per month and total variable costs of $1,200 per month. Charlie sells 1,000 cups of coffee at a price of $2.00 per month. With all other factors held constant, which of the following statements is true?

Question

Charlie’s profit is $400 per month.

Charlie’s loss is $400 per month.

Charlie’s total revenue is $1,000 per month.

Charlie’s total costs are $800 per month.

Answer 1

To analyze the situation at Charlie's Coffee Cabana, we need to calculate his total revenue, total costs, and profit or loss.

1. Total Revenue: Charlie sells 1,000 cups of coffee at a price of $2.00 each. \[ \text{Total Revenue} = \text{Price per cup} \times \text{Number of cups sold} = 2 \times 1,000 = 2,000 \]

2. Total Costs: Total costs are the sum of total fixed costs and total variable costs. \[ \text{Total Costs} = \text{Total Fixed Costs} + \text{Total Variable Costs} = 400 + 1,200 = 1,600 \]

3. Profit or Loss: Profit is calculated by subtracting total costs from total revenue. \[ \text{Profit} = \text{Total Revenue} - \text{Total Costs} = 2,000 - 1,600 = 400 \]

Now, let’s evaluate the statements:

1. Charlie’s profit is $400 per month. - True
2. Charlie’s loss is $400 per month. - False
3. Charlie’s total revenue is $1,000 per month. - False (Total revenue is $2,000)
4. Charlie’s total costs are $800 per month. - False (Total costs are $1,600)

The correct answer is: Charlie’s profit is $400 per month.