Question

Which of the following statements is typically true?

a. variable cost per unit increases as volume increases
b. fixed cost per unit decreases as volume increases
c. a curvilinear cost includes both fixed and variable elements

Answer 1

Variable costs increase or decrease with output, while fixed costs per unit remain constant regardless of the volume of production.

Step-by-step explanation:

Variable costs are the costs of the variable inputs (e.g. labor). The only way to increase or decrease output is by increasing or decreasing the variable inputs.

Therefore, variable costs increase or decrease with output. We treat labor as a variable cost, since producing a greater quantity of a good or service typically requires more workers or more work hours. Variable costs would also include raw materials.

On the other hand, fixed costs per unit remain constant regardless of the volume of production. Fixed costs are costs that do not change with the output level, such as rent for a factory or lease payments for equipment.

In summary, the statement that is typically true is option a) variable cost per unit increases as volume increases.