Krista's dry-cleaning business incurs $900 per month in fixed costs.Last month her total output was 3,000 pounds of clothes.This month her total output fell to 2,700 pounds.This means her average fixed cost _____ by a little more than _____ cents.

Question

Quizplus · Accepted Answer

Fixed costs remain constant regardless of the level of output. When output decreases, the average fixed cost per unit increases because the same amount of fixed costs is spread over fewer units. Last month, the average fixed cost was $900 / 3,000 = $0.30 per pound. This month, it is $900 / 2,700 = $0.333 per pound. The difference is more than $0.033 per pound, which is more than 3.33 cents.

Krista's Dry-Cleaning Business Incurs $900 Per Month in Fixed Costs