Use the Following Scenario to Answer the Questions

question 133

Multiple Choice

Use the following scenario to answer the questions:
Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes.
-Steve's average variable cost was __________ per bike.

• A) $375
• B) $625
• C) $1,000
• D) $2,000
• E) $600

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Definitions:

Labor

Human effort, either physical or mental, used in the production of goods and services.

Capital

Financial assets or the financial value of assets, such as cash and buildings, used by a business to produce goods or services.

Least-Cost Combination

An economic principle where firms aim to achieve the lowest possible cost of production by efficiently combining resources.

Marginal Product

The additional output that is produced by adding one more unit of a specific input, while holding other inputs constant.