Question

Which of the following is the correct statement about fixed costs?

1) Fixed costs remain constant regardless of the level of production.
2) Fixed costs increase with the level of production.
3) Fixed costs decrease with the level of production.
4) Fixed costs are not relevant in business decision-making.

Answer 1

The correct statement about fixed costs is that they remain constant regardless of the level of production, exemplified by expenses such as factory rent, which does not fluctuate with production quantity.

Step-by-step explanation:

The correct statement about fixed costs is that they remain constant regardless of the level of production. Fixed costs are expenditures that do not change in relation to the production volume; they are incurred regardless of how much or how little is produced. Rent on a factory is a classic example: the rent cost stays the same no matter the production quantity, at least until the lease expiration. Other forms of fixed costs include machinery or equipment costs, research and development expenses, and brand advertising. These apply to businesses irrespective of scale, from large manufacturing plants requiring costly facilities to small movers that may operate with minimal fixed costs by renting trucks only when needed.