Dolph and Evan Started the DE Restaurant in 2015

question 125

Essay

Dolph and Evan started the DE Restaurant in 2015. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.
During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Dolph and Evan, but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.
Required:
Explain why the profits have increased at a faster rate than sales. Use the terms variable costs and fixed costs in your response.

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Definitions:

Anticipation of Failure

The preconceived belief or expectation that one's actions will not result in success, often leading to anxiety or a lack of motivation.

Self-efficacy

An individual’s belief in their own capability to execute behaviors necessary to produce specific performance attainments.

Observational Learning

The process of acquiring knowledge and skills by observing and imitating the actions of others, without direct instruction or experience.

External Locus

A belief that control over events and outcomes lies outside oneself.