Merkey Motel's cost function is given as: Y = $50,000 + $7.50X
Where:
Y = annual custodial cost
X = number of guest-days of occupancy
In the current year,Merkey Motel has 8,000 guest days.In the next year,Merkey Motel expects an occupancy level of 10,000 guest days.(All costs next year will remain in the same relevant range as the current year.)What is the expected fixed custodial cost for next year?
A)$7.50
B)$50,000
C)$62,500
D)$75,000

Question

Quizplus · Accepted Answer

The fixed cost remains the same regardless of the level of occupancy. It is given as $50,000 in the cost function equation, and thus the expected fixed custodial cost for next year will also be $50,000. Therefore, the correct choice is B.

Merkey Motel's Cost Function Is Given As: Y = $50,000