In 1985, the Coca-Cola Company was faced with soaring prices for sugar cane. A 1
ID: 1114323 • Letter: I
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?
_______________ Variable Cost? ________________Fixed Cost?
_______________Average Total Cost?______________Average Fixed Cost?
_________________Average Variable Cost?__________________
Explanation / Answer
Sugar is a variable input. This is because as more quantity of cola is produced, more of sugar is used. It is a variable input.
Total Cost? yes. when cost of sugar falls, total cost will also fall.
fixed cost: No. it will remain te same
ATC -yes, it will fall because of fall in TC
AFC- No, it will remain the same because fixed cost will remain the same.
AVC- yes, it will fall because of decrease in total variable cost.