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Question
Which of the following best describes a fixed cost?
Options
A cost that remains at the same level up to a particular level of output.
The cost changes with levels of output.
A cost that remains at the same level when output increases.
None of these.
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Solution
A cost that remains at the same level up to a particular level of output.
Explanation:
A fixed cost remains constant within a relevant range up to a particular level of output; for example, rent and machinery depreciation. It doesn’t vary with the number of units produced, though the fixed cost per unit falls as output increases.
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