Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. This firm's fixed cost each day is: $$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Employee-Hours } \
\text { Per Day }
\end{array} & \begin{array} { c }
\text { Output } \
\text { Per Day }
\end{array} \
\hline 0 & 0 \
\hline 1 & 40 \
\hline 4 & 80 \
\hline 9 & 120 \
\hline 15 & 160 \
\hline 23 & 200 \
\hline
\end{array}$$

Question

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. This firm's fixed cost each day is: $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Employee-Hours } \
\text { Per Day }
\end{array} & \begin{array} { c } 
\text { Output } \
\text { Per Day }
\end{array} \
\hline 0 & 0 \
\hline 1 & 40 \
\hline 4 & 80 \
\hline 9 & 120 \
\hline 15 & 160 \
\hline 23 & 200 \
\hline
\end{array}$$

Quizplus · Accepted Answer

Fixed cost is the cost that the firm has to pay irrespective of how much output they produce. In this case, the fixed cost is the rent for the office space which is $50 per day. The hourly wage rate is not a fixed cost as it varies with the number of employee-hours used each day. Therefore, the fixed cost for this firm each day is $50.

Suppose a Firm Uses Workers and Office Space to Produce