Question

Gerda owns a grocery store. When decreasing prices force her to cut costs, one of the first things she does is

A. stop paying her property taxes.
B. cut her rent costs in half.
C. decrease hours for some workers.
D. stop selling perishable foods.

Answer 1

C. Would be the first thing she should/would do.

Answer 2

The third alternative is correct (C).

The cost structure of a business is composed of fixed costs and variable costs. Fixed costs are those costs that can not be quickly eliminated, such as rent and taxes. Variable costs are those that accompany the rate of production or sale of the business, such as inputs and manpower. In this context, at a time of austerity, variable costs are the costs that can be cut in the short term. In the case of the Gerda grocery store, it can reduce the number of hours of some workers, as described in alternative C.