Suppose Larry's Lariats produces lassos in a factory,and uses nine feet of rope to make each lasso.The rope is put into a machine that automatically cuts it to the right length,then seals the ends to prevent fraying.The rope is then hand tied,dipped,and wound before being placed in a packaging machine to prepare it for retail sale.If Larry were to decrease the production of lassos,which of the following is true regarding the company's costs?
A) The variable costs of rope would drop to zero.
B) The fixed cost of the rope cutting machine would stay the same.
C) The fixed cost of the employee's wages would stay the same.
D) None of these is true.

Question

Quizplus · Accepted Answer

The fixed cost of the rope cutting machine would stay the same even if Larry decreases the production of lassos because it is a one-time cost that doesn't change with the level of production. The variable cost of rope would decrease, but it wouldn't drop to zero as the company would still need some amount of rope to produce any lassos. The fixed cost of the employee's wages would also stay the same as long as the company still employs the same number of workers.

Suppose Larry's Lariats Produces Lassos in a Factory,and Uses Nine