Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Homer's variable cost is equal to

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Variable costs are costs that change with the level of output. In this case, the cost of ingredients ($5,000) is the only cost that varies with the number of donuts produced, making it the variable cost.

Homer's Holesome Donuts Has Determined That Its Profit-Maximizing Quantity Is