Economics
4th Edition
ISBN: 9781464143847
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Concept explainers
Question
Chapter 11, Problem 1BCQ
To determine
Concept Introduction:
Fixed cost: It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of an increase or decrease in output.
Variable cost: This cost is directly proportional to the level of output produced, it increases with an increase in output and vice versa.
Expert Solution & Answer
Explanation of Solution
- Many retailers use costly equipment’s to install robotic systems, and these installation charges are a part of fixed cost.
- After installation of the robotic system, the fixed cost of the firm will increase.
- Hiring workers involves variable costs, and 7,000 workers are hired by A on temporary basis, which will increase its variable cost.
Conclusion:
Thus, the installation of a robotic system will have higher fixed costs, whereas hiring workers will increase its variable cost.
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