Assume a firm reduces its cost by shifting from paychecks to payroll cards, which are stored-value cards onto which the companies can download employees' wages and salaries electronically. If the only factor of production the firm varies in the short run is the number of hours worked by people already on its payroll, would the shift from paychecks to payroll cards reduce the firm’s total fixed costs or its variable costs?
A. Since the wages paid to? employees, the? firm's variable labor? input, have not? changed, variable costs are unaffected. If the switch from issuing paychecks to payroll cards is? cost-reducing, this change will cut its fixed costs of meeting its payrolls.
B. Since the number of hours worked is? variable, the variable cost of processing the payroll? changes; therefore, the cost savings must come from a reduction in variable costs in the short run.
C. Since the number of hours worked is? variable, the variable cost of processing the payroll? changes; therefore, the cost savings must come from a reduction in variable costs in the long run.
D. Since the wages paid to? employees, the? firm's variable labor? input, have? changed, if the switch from issuing paychecks to payroll cards is? cost-reducing, this change will cut its variable costs of meeting its payrolls.
Answer: A. Since the wages paid to? employees, the? firm's variable labor? input, have not? changed, variable costs are unaffected. If the switch from issuing paychecks to payroll cards is? cost-reducing, this change will cut its fixed costs of meeting its payrolls.
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