Table 3 shows the short-run production costs for a car wash: [table]
Costs | Cost per month ($) Land lease | 4,000 Workers’ wages | 2,600 Car wash machines | 3,000 Water | 1,500 Cleaning chemicals | 900
[/table] In the short run, calculate the car wash's fixed costs in Table 3.

Question

BlackTom AI · Accepted Answer

Fixed costs are expenses that do not change with the level of output in the short run. In this table, items that represent sunk or capital costs (and so are fixed) are the land lease and the car wash machines; items that vary with the number of cars washed (labor, water, cleaning chemicals) are variable costs.

Step-by-step reasoning:
1. Identify fixed items from the table:
   - Land lease = $4,000 (a recurring fixed payment regardless of how many cars are washed)
   - Car wash machines = $3,000 (capital/equipment cost fixed in the short run)
2. Identify variable items:
   - Workers’ wages = $2,600 (changes with staffing/hours and number of cars)
   - Water = $1,500 (varies with usage)
   - Cleaning chemicals = $900 (varies with usage)
3. Sum only the fixed-cost items:
   - Fixed costs = land lease + car wash machines
   - Fixed costs = $4,000 + $3,000 = $7,000

Intermediate calculations shown:
- $4,000 + $3,000 = $7,000

Why this is correct:
- By the standard short-run cost classification, fixed costs are those that do not change with output; land rental and equipment are fixed. Labor and input supplies vary with production, so they are excluded from fixed costs.

Why the other choices are incorrect:
- (a) $12,000 equals the sum of all listed costs (total cost): 4,000 + 2,600 + 3,000 + 1,500 + 900 = $12,000, not the fixed portion.
- (c) $10,100 and (d) $8,500 are amounts that mix fixed and variable components (or exclude different items) and therefore do not represent the short-run fixed cost as defined.

Conclusion: The car wash’s short-run fixed costs total $7,000, which matches the provided correct answer.

Table 3 shows the short-run production costs for a car wash: [table] Costs | Cost per month ($) Land lease | 4,000 Workers’ wages | 2,600 Car wash machines | 3,000 Water | 1,500 Cleaning chemicals | 900 [/table] In the short run, calculate the car wash's fixed costs in Table 3.Single choice

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