Question - In February 2015, Wal-Mart announced that it would increase the pay rate for all its lowest paid workers. Is this wage increase a growth in fixed costs or variable costs? Would it be affected by output? If Wal-Mart's sales drop off, how might the store adjust its labor costs?
1. Discuss the definition of fixed costs and variable costs: Start with a definition of terms. What's a fixed cost? What's a variable cost? Is Wal-Mart's pay hike an increase in fixed or variable costs?
2. Discuss how the cost employee pay relates to output: Does the number of employees change with Wal-Mart's level of output? Does Wal-Mart hire more workers during busy times? Slow times? How does that relate to the over cost of employee pay? How might that be changed by the pay increase?
3. Discuss how walmart might manage employee pay costs if their sales go down: What might the store do to reduce its overall labor costs if sales went down?
4. Avoid stories about your experience with wal-mart: Focus on the analysis of how their costs might change as a result of their announced employee pay increase.