Final answer:
Fixed costs are expected to remain constant in total despite changes in activity levels. They result in a per unit cost decrease as production increases. Variable costs differ, showing diminishing marginal returns and rising marginal costs with higher output levels. Option b.
Step-by-step explanation:
Within the relevant range, fixed costs are expected to remain constant in total as the activity level changes. Fixed costs do not vary with the level of production or activity because they are the expenditures that a firm incurs before producing any output. Regardless of whether a company's production level is high or low, its fixed costs, such as rent on a factory, machinery or equipment costs, and research and development expenses, remain unchanged. As production increases, these fixed costs are spread over more units, leading to a decrease on a per unit basis as the activity level increases (b).
Contrary to fixed costs, variable costs fluctuate with production levels and typically show diminishing marginal returns, which means that the marginal cost of producing higher levels of output rises. In the event that an internet company sets up a website with a significant investment in fixed costs, the total cost curve may start at a high level, but appear relatively flat until a certain output level, after which variable costs would increase if output continues to grow, for example, due to the need for more computer space due to high traffic.