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    Which costs are reduced, fixed or variable?

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    In an effort to reduce their total costs, many companies are now replacing paychecks with payroll cards, which are stored-value cards onto which the companies can download employees' wages and salaries electronically. If the only factor of production that a company varies in the short run is the number of hours worked by people on its payroll, would shifting from paychecks to payroll cards reduce the firm's total fixed costs or its total variable costs?

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    Solution Preview

    It would reduce total fixed costs. The problem says that the number of hours is variable but the number of workers is not. This means that ...

    Solution Summary

    If a company replaces paychecks with stored-value cards, is it reducing its fixed costs or its variable costs? This solution gives the answer with a detailed explanation.