Jane Westerlund owns a picture-framing store, The Caplow Co. The average price she receives for a framed picture 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 will cause total costs to increase because advertising is one of the monthly expenses that Jane Westerlund must cover. This means that to maintain profitability, she will have to sell more pictures to cover her higher costs, leading to an increase in the break-even quantity. Therefore, the correct choice is B.

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