Final answer:
Fixed costs remain constant regardless of production levels, so the fixed cost per unit does not vary with changes in activity levels. This distinguishes them from variable costs, which do change with production volume.
Step-by-step explanation:
The statement that the fixed cost per unit varies with changes in the level of activity is false. Fixed costs are expenditures that remain constant regardless of the level of production. For example, the rent on a factory or a retail space is a fixed cost that does not fluctuate with how much is produced. Whether a company produces a great deal or a little, the fixed cost remains the same. On the other hand, variable costs change with the level of production; they include the cost of raw materials and labor directly involved in producing goods.
Businesses with high fixed costs but low marginal costs, like internet companies, face a situation where their total cost curve starts at a high level due to high fixed costs. However, after the initial setup, these businesses may operate with low variable costs. Other firms might have low fixed costs and be affected more dramatically by increases in variable costs as production scales up.
We can also look at average variable costs, which we calculate by dividing variable cost by total output. Average variable costs are typically U-shaped, meaning they decrease, reach a minimum point, and then increase as production levels change.