1. A business incurs the following costs: • Labor: $105/unit
• Materials: $35/unit
• Rent: $400,000/month
Assume the firm produces 1 million units per month.
The total variable cost, per month, ismillion. The total fixed cost, per month, is $million. The total cost is $million.
2. A local coffee shop is hoping to make use of its excess restaurant capacity in the evenings by experimenting with selling beer and wine. It speculates that the only additional costs are hiring more of the same sort of workers to cover the additional hours and costs of the new line of beverages. Which of the following are examples of hidden costs that are likely to emerge from this decision?
A. Training costs for new and existing employees on beer and wine serving procedures.
B. Increased insurance premiums due to the presence of alcohol at the coffee shop.
C. The cost of maintaining the machines that make the coffee.
D. The monthly rent paid for the building.
E. The forgone revenues that could be earned by renting the coffee shop out for other events during evening hours.
3. Students doing poorly in courses often consider dropping the courses. Many universities will offer a refund if the student drops a course before a deadline.
A. True
B. False
Prior to the deadline, students should not take this refund option into account when deciding to drop the course.
A. True
B. False