Question

Classify the following costs as either...

A) Variable or fixed
B) Direct or indirect
C) Marginal or average
D) Explicit or implicit

Answer 1

Costs can be classified as variable or fixed, direct or indirect, marginal or average, and explicit or implicit.

Step-by-step explanation:

Costs can be classified as:

1. A) Variable or fixed: Variable costs change with the level of production or output, while fixed costs remain constant regardless of the level of production. Examples of variable costs include direct materials and direct labor, while fixed costs include rent and salaries.
2. B) Direct or indirect: Direct costs can be directly attributed to a specific product or activity, while indirect costs cannot. For example, the cost of raw materials for a specific product is a direct cost, while the cost of electricity for the entire factory is an indirect cost.
3. C) Marginal or average: Marginal cost is the additional cost incurred by producing one more unit, while average cost is the total cost divided by the number of units produced. Marginal cost can be variable or fixed, depending on the nature of the cost.
4. D) Explicit or implicit: Explicit costs are actual payments made by the firm, such as wages and rent. Implicit costs are the opportunity costs of using resources owned by the firm, such as the owner's time and the depreciation of equipment.