Randy’s Reading Room sells mystery novels. Randy is usually a meticulous bookkee

Question

Randy’s Reading Room sells mystery novels. Randy is usually a meticulous bookkeeper, keeping daily cost data. He did, however, fail to complete all of his bookkeeping responsibilities yesterday. Below, you are provided with the incomplete data that Randy did manage to record.

Task 1: Using the imperfect data that Randy managed to record, identify the missing elements.

Task 2: Explain why the total fixed cost is the same, or constant, for all amounts of mystery novels that Randy sells.

Task 3: Explain why the total variable cost of selling zero mystery novels must ALWAYS be $0.

Quantity (novels) Total cost (dollars) Total fixed cost (dollars) Total variable cost (dollars) 0 $55 $55 $ 1 20 2 100 3 55 95 4 175 55 5 155

Explanation / Answer

1-

TFC + TVC = TC

2 - Fixed cost remains the same because it is independent of the number of novels sold.

3- Total Variable cost of selling zero novels is always $0 because variable costs are directly dependent upon the number of novels sold and when Q = 0 , VC = $0.

Q TC ($) TFC ($) TVC ($) 0 55 55 0 1 75 55 20 2 100 55 45 3 150 55 95 4 175 55 120 5 210 55 155

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