Ralph Owns a Pool Store

question 2

Multiple Choice

Ralph owns a pool store.His total costs are $225,000 per year,and his variable costs are $75,000 per year.This means that his fixed costs are

• A) $75,000.
• B) $225,000.
• C) $300,000.
• D) $50,000.
• E) $150,000.

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Definitions:

Long-Run Average Cost

The average cost per unit of output when all inputs, including capital, are variable, allowing for the adjustment of all factors in production to achieve the lowest cost.

Output

The quantity of goods or services produced in a given period of time.

Returns to Scale

The change in output resulting from a proportionate increase in all inputs (factors of production), where increasing, constant, and decreasing returns to scale can occur.

Long-Run Average Total Cost

The average cost per unit of output in the long term when all inputs can be varied by the firm and economies of scale have been reached.