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 labor 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 advertising expenses to $1,000, 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
E)stay the same; decrease

Question

Quizplus · Accepted Answer

The slope of the total cost curve, which represents variable costs, remains unchanged because advertising is a fixed cost. However, increasing fixed costs raises the break-even quantity.

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