Question

Bob operates Bob's Pizza, a small pizzeria that sells about 50 pizzas a day. Bob's daily total fixed costs are $100, and his daily total variable costs are $600. If for some reason Bob's fixed cost increased to $150, then his: Select one:

Answer 1

Available options are:

A. All of the choices are correct.

B. Average fixed costs would increase.

C. Marginal costs would increase.

D. Average variable costs would increase

Answer:

Option B. Average fixed costs would increase.

Explanation:

As the variable cost is the same which means that the marginal cost (All variable costs) would neither increase nor the average variable cost (Average variable cost due to fluctuating variable cost) would increase. Hence both Option C and D are incorrect.

Option B is correct because:

Average Fixed cost = (Initial Value + Value Now) / 2

Average Fixed cost = ($100 + $150) / 2 = $125

This means that the average cost has been increased.