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 costs for a typical framed picture,which consists of $5 for glass,$2 for matting,$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 there is no change in price or the quantity demanded,if Westerlund wants to increase her advertising expenses to a total of $1,000 (a $500 increase),this would cause total costs to __________ and the break-even quantity to __________.
A) decrease; stay the same
B) increase; increase
C) decrease; increase
D) stay the same; increase
E) stay the same; decrease

Question

Quizplus · Accepted Answer

Increasing advertising expenses by $500 will increase the total monthly expenses by $500. This will cause total costs to increase and hence the break-even quantity will also increase. Thus, the correct answer is option B, where total costs will increase and the break-even quantity will increase.

Westerlund Owns a Picture-Framing Shop,The Caplow Co