Final answer:
The effect on net income with changes in sales volume is dependent on the behavior pattern of various costs, particularly how fixed and variable costs behave in response to changes in production levels. Fixed costs do not vary with production volume, whereas variable costs do, impacting overall profitability.
Step-by-step explanation:
Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes, the effect on net income will depend on the behavior pattern of various costs. Fixed costs, such as the initial setup of a website for an internet company offering medical advice, are costs that do not change with the level of production or sales volume. On the other hand, variable costs, like the cost of monitoring the system and updating the information for the website, do vary with production level. For a company with high fixed costs but low variable costs, initially, the total cost curve may appear relatively flat after a certain level of output, reflecting the low variable costs. However, if the demand increases significantly, the company may face additional costs if it needs to purchase more computer space to handle the increased web traffic, which could impact net income.
Understanding how fixed and variable costs behave is crucial for a firm to anticipate the extent to which costs will increase if production rises and to make informed decisions that can help in maximizing profit.