Multiple Choice
Which of the following graphs correctly represents the relationship among the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves in the short run?
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10. The Costs of Production
Cost-Minimizing Combination of Labor and Capital
Multiple Choice
Which of the following costs is an example of a fixed cost in the context of cost-minimizing combinations of labor and capital?
A
Wages paid to hourly workers
B
Payments for raw materials
C
Electricity costs that vary with production
D
Monthly rent for factory space
Verified step by step guidance1
Understand the definition of fixed costs: Fixed costs are expenses that do not change with the level of output produced. They remain constant regardless of how much or how little is produced in the short run.
Identify the nature of each cost option: Wages paid to hourly workers vary with the number of hours worked, so they are variable costs. Payments for raw materials depend on the quantity produced, so they are also variable costs. Electricity costs that vary with production are variable costs as well.
Recognize that monthly rent for factory space is a fixed cost because it must be paid regardless of the level of production. It does not fluctuate with output.
In the context of cost-minimizing combinations of labor and capital, fixed costs are important because they represent sunk costs that do not influence the marginal decision of how much to produce or which input combination to choose.
Therefore, the monthly rent for factory space is the correct example of a fixed cost among the options provided.
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