Fixed Cost Vs. Variable Cost
Not what you're looking for?
Can you help me explain this fixed and variable cost problem? I am not too sure how to go about answering this question.
Problem: Organizations typically have high or low fixed costs. It is important to understand the difference between these two types of organizations and how their business decisions differ. One organization (American Airlines) must have high fixed costs and low variable costs, and the other organization (Netflix) must have low fixed costs and high variable costs. Companies with high fixed costs include manufacturing companies, whereas service companies might have low fixed costs. Chart the relationship between total cost and the number of units for each organization. Plot two lines on the graph: one for the organization that has high fixed costs and low variable costs, and one for the organization that has low fixed costs and high variable costs.
Make sure to:
- Explain how to balance fixed and variable costs.
- Explain Production Possibilities.
Purchase this Solution
Solution Summary
This posting gives you a step-by-step explanation of fixed and variable cost problem. The response also contains the sources used.
Solution Preview
Refer to the attachment to view the graph.
Step 1
There are two sets of lines on the graph. Organization A is the firm that has low fixed costs and high variable costs. The total cost curve of this organization is raising steeply because of high variable costs. Organization B is a firm that has high fixed costs and low variable costs. The total cost curve of B is less steep than that of A because organization B has low variable costs.
Step 2
There is a need to balance fixed and variable cost. In case of high fixed costs, the fixed costs are spread over a ...
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.