Question

Fixed Costs:

a. may include either direct or indirect costs
b. Vary with production or sales volume
c. Include parts and materials used ot manufacture a product
d. Can be adjusted in the short-run to meet actual demand

Answer 1

Fixed costs are constant expenditures that do not vary with production levels and include costs like rent, machinery, and research and development. They are sunk costs and should not impact future production or pricing decisions.

Step-by-step explanation:

Fixed costs are expenditures that do not change regardless of the level of production. They are the costs associated with fixed inputs, such as capital, that do not vary in the short run. Examples include the rent on a factory or a retail space, machinery or equipment costs, research and development expenses, and certain marketing costs like advertising to establish a brand.


In contrast to variable costs, which show diminishing marginal returns and increase with production volume, fixed costs remain constant whether a business produces a lot or a little. They are also considered sunk costs, which means they have already occurred and cannot be recovered or altered, hence they should not influence future economic decisions regarding production or pricing.