Manufacturing companies typically have a number of fixed costs (such as rent, machinery, insurance, etc.), which do not depend on output, and variable costs (such as wages, utilities, materials, etc.), which vary with output, usually at a constant rate. The graph shows a company's costs for manufacturing a particular product over the course of two years. Which of the following could explain the difference between the 2013 and 2014 costs?
A. The company reduced its fixed costs by 50%.
B. The company reduced its variable costs by 50%.
C. The company reduced the number of units produced by 50%.
D. The company reduced its fixed costs, variable costs, and the number of units produced by 50%.
Answer:A
Manufacturing companies typically have a number of fixed costs (such as rent, machinery, insurance, etc.), which do not depend on output, and variable costs (such as wages, utilities, materials, etc.), which vary with output, usually at a constant rate. The graph shows a company's costs for manufacturing a particular product over the course of two years. Which of the following could explain the difference between the 2013 and 2014 costs?
A. The company reduced its fixed costs by 50%. B. The company reduced its variable costs by 50%. C. The company reduced the number of units produced by 50%. D. The company reduced its fixed costs, variable costs, and the number of units produced by 50%.
Explanation: A