Exhibit 7-5 Output per day Workers per day Total cost $10 50 7. In Exhibit 7-5,...

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Exhibit 7-5 Output per day Workers per day Total cost $10 50 7. In Exhibit 7-5, what is fixed cost at 20 units of output? a.

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Answer : 7) The answer is option b.

Total cost = Fixed cost + variable cost. In case of zero (0) output level the variable cost is $0. Here when output was zero (0) then total cost was $10. This means that the fixed cost is $10.

When output is 5 units then number of workers is 1 and total cost is $20. As fixed cost is $10, this means that the variable cost is (20 - 10) = $10. This indicates that the wage rate is $10 per worker.

In case of 20 units output level the number of workers is 4. So, total variable cost at 20 units output level = number of workers * wage rate = 4 * 10 = $40.

So, fixed cost at 20 units output level = total cost - total variable cost = 50 - 40 = $10.

Hence except option b other options are not correct. Therefore, option b is the correct answer.

8) The answer is option a.

At 18 units output level the number of workers is 3. Fixed cost is $10. So, variable cost at 18 units output level = total cost - fixed cost = 40 - 10 = $30.

Hence except option a other options are not correct. Therefore, option a is the correct answer.

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