Question

Distinguish between fixed and variable costs. Give one example of each.

Answer 1

Sr. No.	Basis	Fixed Costs	Variable Costs
1.	Definition	Total of expenditure incurred by the producer on the purchase or hiring of fixed factors of production.	Expenditure incurred by the producer on the use of variable factors of production.
2.	Variability	Does not change with change in quantity of output. Remains the same whether the output is zero or maximum.	Changes with change in quantity of output. Cost is zero when the output is zero.
3.	Examples	Cost of plant and machinery, Wages of permanent staff, etc.	Cost of raw materials, Wages of casual labourers, etc.