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 _____.
A)decrease; stay the same
B)decrease; increase
C)increase; increase
D)stay the same; increase

Question

Quizplus · Accepted Answer

The slope of the total cost curve, which is determined by variable costs, remains unchanged as these costs are not affected by changes in fixed costs like salary. However, increasing her salary raises total fixed costs, thus increasing the break-even quantity.

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