Suppose Larry's Lariats produces lassos in a factory, using nine feet of rope to make each lasso. The rope is put into a machine that automatically cuts it to the right length and seals the ends to prevent fraying. The rope is then hand tied, dipped, and wound before being placed in a packaging machine to prepare it for retail sale. If the company decreases its production of lassos, what is true regarding the company's costs? A)The variable cost of the rope would drop to zero. B)The fixed cost of the rope cutting machine would stay the same. C)The fixed cost of employee wages would stay the same. D)None of these are correct.

Question

Quizplus · Accepted Answer

Fixed costs, such as the cost of the rope cutting machine, do not change with the level of production.

Suppose Larry's Lariats Produces Lassos in a Factory, Using Nine