Rey Misterio has obtained fixed- and variable-cost information for four potentia
ID: 432797 • Letter: R
Question
Rey Misterio has obtained fixed- and variable-cost information for four potential sites for his professional wrestling school and summarized it in tabular form below. All values are in dollars.
Site
Fixed Cost
Variable Cost
A
10,000
24
B
12,000
20
C
14,000
18
D
16,000
17
Rey evaluates levels of demand ranging from 100 to 2,500 students per year. Which site has the lowest cost for the greatest range of students throughout this continuum?
Site
Fixed Cost
Variable Cost
A
10,000
24
B
12,000
20
C
14,000
18
D
16,000
17
Explanation / Answer
Site C. Correct option
Between Site A and B = FCB – FCA)/(VCA – VCB)
= (12000 – 10000)/ (24-20)
= 500 units
Between Site B and C = FCC – FCB)/(VCB – VCC)
= (14000 – 12000)/ (20-18)
= 1000 units
Between Site C and D = FCD – FCC)/(VCC – VCD)
= (16000 – 14000)/ (18-17)
= 2000 units
Hence less than 500 units = A
500<B<1000 units
1000<C<2000 units
D>2000 units
Hence maximum units in the range of 100 to 2500 is of Site C with 1000 units
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