Cindy operates Bird-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly fixed costs are $500 and her monthly variable costs are $2,500. Suppose Cindy's monthly fixed costs rise to $1,000, then her:

a. Average Total Costs would increase

b. Marginal Costs would increase

c. Average Variable Costs would Increase

d. None of the above

Question

Business

Ariel Chapman

27 June, 21:08

Cindy operates Bird-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly fixed costs are $500 and her monthly variable costs are $2,500. Suppose Cindy's monthly fixed costs rise to $1,000, then her:

a. Average Total Costs would increase

b. Marginal Costs would increase

c. Average Variable Costs would Increase

d. None of the above

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Answers (1)

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Royce Brandt · Answer 1

a. Average Total Costs would increase

Explanation:

Total costs are comprised of fixed costs plus variable costs. The average total cost is the aggregate of variable and fixed costs divided by the number of units produced. An increase in either variable costs, fixed costs, or both without a corresponding increase in the number of units produced would lead to an increase in total average costs.

In the case of Cindy, her fixed costs have increased. It means her total costs of doing business have gone up. Her average cost per unit will go up because her output is still 100. Before the rise in fixed cost, the total average cost per unit was $30 (3000/100). Her new total average cost per unit is $35 (3500/100)