Suppose a pizza parlor has the following production costs: $3.00 in labor per pizza, $1. oo in ingredients per pizza, $0.20 in electricity per pizza, $2000 in restaurant rent per month, and $450 in insurance per month. Assume the pizza parlor produces 5,000 pizzas per month. What is the variable cost of production (per month) ? What is the fixed cost of production (per month) ?

Variable cost: $21,000

Fixed cost: $2,450

Explanation:

The variable costs are the costs that change depending on the quantity of output like labor.

Variable cost of production per month = ($3*5,000) + ($1*5,000) + ($0.20*5,000)

Variable cost of production per month = $15,000+$5,000+$1,000

Variable cost of production per month = $21,000

The fixed costs are the costs that are constant despite the amount of output like rent.

Fixed cost of production per month = $2,000+$450

Fixed cost of production per month = $2,450