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

question 123

Multiple Choice

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 labour 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. Westerlund is considering buying an automatic mat-cutting machine in order to reduce the number of hours of direct labour required to produce a framed picture. In considering this purchase, she should recognize it will ________ Caplow's variable cost and ________Caplow's fixed cost.

• A)increase; decrease
• B)increase; increase
• C)decrease; increase
• D)decrease; decrease

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Definitions:

Disposable Income

The amount of money an individual or household has available to spend or save after taxes and necessities have been paid.

Interest Rates

The percentage charged on borrowed money or paid to investors, which reflects the cost of borrowing or the return on investment.

Discretionary Income

The amount of an individual's income left for spending, investing, or saving after all taxes and necessities have been paid.

Luxury Items

High-end products or services that are not essential but are desired for their quality, status, and aesthetic appeal, often associated with a higher price.