Question

Problem Set 3.2

Answer 1

Answer:

Fixed costs do not change as a result of a change in the production amount but variable costs do. So long as the item changes as a result of production, it is a variable cost.

1. Rent ⇒ Fixed

Once rent is paid, it will not change regardless of the quantity produced.

2. Thread ⇒ Variable

In an apparel shop like this one, more thread is needed to produce more clothes so this is a variable cost.

3. Buttons ⇒ Variable.

More buttons are needed for more clothes to be made.

4. Wages ⇒ Variable

Wages will change if more clothes need to be produced.

5. Electricity ⇒ Variable

Cost will change if more clothes are manufactured because more electricity will be used.

6. Cloth ⇒Variable

7. Equipment Rent ⇒ Fixed

This will not change regardless of production level just like rent.

8. Shipping Costs ⇒ Variable Cost

More clothes means more shipping costs to transport them.

9. Insurance ⇒ Fixed cost

10. Property Taxes ⇒ Fixed cost

This does not change regardless of production level as it is based on the property, not production.  

Production                Fixed cost                       Variable                  Total

0                                      5                                    0                              5

1                                       5                                    6                             11  

2                                       5                                   9                               14

3                                       5                                  13                            18

4                                       5                                   18                            23

5                                       5                                  25                            30

6                                      5                                  34                               39

7                                      5                                   49                              54

8                                      5                                   68                              73