Coinstar has installed automated, self-serve espresso kiosks in grocery stores. Kiosks cost just under $40,000 each and Coinstar provides maintenance. The self-serve kiosks remove the labor costs of having a barista serve Starbucks’ coffee and store personnel refill the machine.
a. What is Coinstar’s total fixed cost of operating one self-serve kiosk? What are its variable costs of providing coffee at a self-serve kiosk?
b. Assume that a coffee machine operated by a barista costs less than $40,000. Explain how the fixed costs, variable costs, and total costs of barista-served and self-served coffee differ.
c. Sketch the marginal cost and average cost curves implied by your answer to part (b).