Simon estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Simon, the total cost of opening the new branch and remaining open for one year will be
A)$500,000.
B)$550,000.
C)$650,000.
D)$450,000.
E)$605,000.

Question

Quizplus · Accepted Answer

The total cost includes the fixed costs of $500,000 plus the variable costs of servicing 1,000 new customer accounts at $50 each, which equals $50,000. Therefore, the total cost is $500,000 + $50,000 = $550,000.

Simon Estimates That the Fixed Costs Associated with Opening a New