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You are given the following data for a firm - Leaving Cert Economics - Question 2 - 2017
Question 2
You are given the following data for a firm. Quantity (units of output) 1 2 3 4 Fixed costs in € 3,000 3,000 3,000 3,000 (i) Draw and label the fixed costs ... show full transcript
Worked Solution & Example Answer:You are given the following data for a firm - Leaving Cert Economics - Question 2 - 2017
Step 1
Draw and label the fixed costs for this firm.
Answer
To graph the fixed costs:
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Set the axes:
- The Y-axis (vertical) represents costs in €.
- The X-axis (horizontal) represents quantity of output.
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Label the axes:
- The Y-axis should be labeled as 'Costs (€)'.
- The X-axis should be labeled as 'Quantity (Units)'.
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Plot the fixed costs:
- Since the fixed costs remain constant at €3,000 for all output levels, draw a horizontal line at €3,000 across the graph spanning all quantities (1 to 4 units of output).
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Add a label:
- Clearly label the horizontal line as 'Fixed Costs' next to the line.
Step 2
Explain the term fixed costs and state one example for a firm.
Answer
Fixed costs are expenses that do not change with the level of output produced by a firm. They remain constant regardless of how much or how little is produced.
For example, the rent of a fixed asset, such as a factory or office space, is considered a fixed cost. This expense must be paid even if the firm produces no output.