Fixed and Variable Costs
Why is it important to distinguish between fixed and variable costs?
Explain how a decrease in input prices or an increase in efficiency would affect costs.
You spent $500,000 on coding training last year. Is this a sunk cost? Should it be considered in making a decision whether to switch coding software?
You bought two acres of land for $200,000 ten years ago. Although it is zoned for commercial use, it currently holds eight small, single- family houses. A property management firm that wants to continue leasing the eight houses has offered you $400,000 for the property. A developer wants to build a 12-story apartment building on the site and has offered $600,000. What value should you assign to the property?
A clinic’s cost and visit data are as follows. Calculate its average and marginal costs. Note that you can only calculate marginal cost as visits increase from 100 to 110.
Visits Total Cost Average Cost Marginal Cost
100 $2,000
110 $2,100
A community health center has assembled the following data on cost and volume. Calculate its average and marginal costs for volumes ranging from 25 to 40. What patterns do you see?
