Question

Platinum Pipeline Inc. needs a Caterpillar D6T dozer to install water and sewer lines. How does its fixed cost change if it can rent a dozer rather than buy​ one?

If Platinum Pipeline can rent a dozer​ (instead of having to buy​ one), then it is likely that its fixed cost of production will ______

A. decrease because the dozer will become a sunk cost.

B. increase because the dozer will likely become an opportunity cost.

C. decrease because the dozer will become a variable cost.

D. remain unchanged because the dozer will remain a fixed cost.

Answer 1

"C"

If the bulldozer is available on rent then they firm will rent it only when they have to employ it for work, it will reduce the fixed cost because now the cost of bulldozer will become variable cost. The answer is "C".