Question

Mike’s Bike Shop rents mopeds to tourists at the beach. The old manager charged $20 per day plus $0.05 per mile. The new manager wants to change the marketing strategy and charge $15 per day and exclude the extra $0.05 per mile. What type of costs are most important to consider when the new manager plans to lower the charges to customers?

Answer 1

Answer: Fixed Costs

Explanation:The Manager needs to consider the fixed cost of the business before lowering the charges to customers.

Fixed costs are cost incurred that do not vary with output. if fixed cost are lowered without proper calculation/consideration, the business might run at a loss.