Question

In 1985, the Coca-Cola Company was faced with soaring prices for sugar cane. A 1-cent increase in the price of sugar cane raised its total cost by $20 million. Rather than raise the price, the company looked for a cheaper input and replaced cane sugar with corn sugar. Because corn was more plentiful in the United States, it was cheaper to produce. Is sugar a fixed or variable input? Sugar is a ____________ input.
For the following questions fill-in the blank with either yes or no.

Did the switch in the input lower: Total Cost?

Did the switch in the input lower: Variable Cost?

Did the switch in the input lower: Fixed Cost?

Did the switch in the input lower: Average Total Cost?

Did the switch in the input lower: Average Fixed Cost?

Did the switch in the input lower: Average Variable Cost?

In 1985, the Coca-Cola Company was faced with soaring prices for sugar cane. A 1-cent increase in the price of sugar cane raised its total cost by $20 million. Rather than raise the price, the company looked for a cheaper input and replaced cane sugar with corn sugar. Because corn was more plentiful in the United States, it was cheaper to produce. Is sugar a fixed or variable input? Sugar is a For the following questions fill-in the blank with either yes or no. Did the switch in the input ower: Total Cost? A input Variable Cost? Fixed Cost? Average Total Cost? Average Fixed Cost? Average Variable Cost?

Answer 1

Given that Coca-cola was able to replace sugar cane with corn sugar even in the short run, sugar is considered as a variable input of production.

A change in the price of a variable input affects not only the total variable cost (and hence average variable cost) but also the total cost (and hence average total cost)

Thus, the switch in input will lower:

Total cost - Yes

Variable cost - Yes

Fixed cost - No

ATC - Yes

AFC - No

AVC - Yes