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A supervisor's salary stays constant over a range of output but jumps to a new higher level the moment a second supervisor must be hired as output crosses a limit. This pattern is described as a:
ASemi-variable cost
BMarginal cost
CCompletely variable cost
DStair-step cost
Answer & Solution
Correct answer: D. Stair-step cost
1. A stair-step cost remains fixed over a range of output, then suddenly jumps to a higher level once output exceeds a given limit.
2. The supervisor's salary is flat until a second supervisor is needed, then steps up.
3. This flat-then-jump pattern is exactly the stair-step description.
4. A semi-variable cost (A) blends fixed and variable parts continuously; a completely variable cost (C) rises smoothly with output; marginal cost (B) is added cost per unit. Hence stair-step cost.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.4_
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