Cindy operates Birds-R-Us,a small store manufacturing and selling 100 bird feeders per month.Cindy's monthly total fixed costs are $500,and her monthly total variable costs are $2,500.If for some reason Cindy's fixed cost fell to $400,then her _____ costs would _____.
A)average fixed;increase
B)average total;decrease
C)marginal;decrease
D)average variable;decrease

Question

Quizplus · Accepted Answer

With a decrease in fixed costs, the average total cost per unit would decrease because the total cost (fixed plus variable) to produce the same quantity of goods has decreased. Fixed costs are spread out over the units produced, so a decrease in fixed costs lowers the cost per unit. Marginal costs and average variable costs are not directly affected by changes in fixed costs.

Cindy Operates Birds-R-Us,a Small Store Manufacturing and Selling 100 Bird