Understanding Fixed and Variable Costs

The video tutorial explains the concepts of fixed and variable costs using a productivity experiment and a hypothetical puppy business. It discusses the resources needed for the business, analyzes the costs associated with different levels of output, and explores how to balance these costs to maximize profit. The tutorial emphasizes the importance of understanding cost structures in business decision-making.

What happens to fixed costs as output increases?

• They remain unchanged.

• They fluctuate randomly.

• They decrease.

• They increase.

Which of the following is considered a fixed resource in the puppy business example?

• Kennel space for puppies

• Adult dogs

• Vet care for puppies

• Puppy food

How do variable costs behave as the number of puppies produced increases?

• They increase.

• They decrease.

• They disappear.

• They remain constant.

What is the total fixed cost mentioned for starting the puppy business?

• $2500

• $2000

• $1000

• $1500

If only one puppy is produced, what is the fixed cost per puppy?

• $500

• $750

• $1000

• $1500

What happens to the average fixed cost per puppy as more puppies are produced?

• It remains the same.

• It becomes unpredictable.

• It decreases.

• It increases.

What is a potential risk of producing a large number of puppies?

• Lower fixed costs

• Decreased demand

• Higher selling prices

• Increased health risks

What is the main objective of a business owner in terms of costs?

• Minimize variable costs

• Minimize output

• Maximize fixed costs

• Maximize profit

What happens to variable costs at higher levels of output?

• They decrease.

• They become negligible.

• They remain constant.

• They rapidly increase.

What is the ideal production level for balancing fixed and variable costs?

• Middle ground

• No output

• High output

• Low output