Jane Westerlund owns a picture-framing shop, The Caplow Co. The average price she receives for a picture she frames for a customer is $120. This price must cover her average costs for a typical framed picture of $5 for glass, $2 for matting, and $13 for the frame, and $30 for the labour involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Assuming everything else stays the same, if Westerlund wants to increase her monthly salary to $4,000, this would cause the slope of the total cost curve to ________ and the break-even quantity to _________.

Question

Quizplus · Accepted Answer

The slope of the total cost curve represents the variable cost per unit, which does not change with an increase in Jane Westerlund's salary, as her salary is a fixed cost. However, increasing her salary increases the total fixed costs, thereby increasing the break-even quantity, as more units must be sold to cover the higher total fixed costs.

Jane Westerlund Owns a Picture-Framing Shop, the Caplow Co