Smith Company Is Attempting to Develop the Cost Function for Repair

question 111

Multiple Choice

Smith Company is attempting to develop the cost function for repair costs. The following past data are available:
$\begin{array}{lr}\text { Machine Hours }&\text {Repair Costs }\\4,800 & \$ 6,385 \\3,400 & 4,585 \\4,000 & 5,285 \\5,900 & 7,085\end{array}$
Using the high-low method, what is the variable repair cost per machine hour?

• A) $0.15
• B) $1.00
• C) $4.00
• D) $5.00

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Definitions:

Natural Monopoly

A market situation in which the average costs of production continually decline with increased output. In a natural monopoly, the average costs of production will be lowest when a single, large firm produces the entire output demanded by the marketplace.

Perfectly Elastic

Perfectly elastic refers to a situation in economic theory where the quantity demanded or supplied of a good changes infinitely in response to any change in price.

Price-taker Industry

An industry in which companies have no control over the prices they charge because these prices are determined by the overall supply and demand in the market.

Total Revenues

The total sum of money a company earns from selling goods or providing services over a specified time frame.