Question

What residual contributes the most to the sum?

a) Fixed Costs
b) Variable Costs
c) Direct Costs
d) Indirect Costs

Answer 1

Variable costs tend to contribute the most to a firm's total costs.

Step-by-step explanation:

In a firm's total costs, the residual that contributes the most to the sum depends on the specific circumstances of the firm. However, in general, variable costs tend to contribute the most to the total. Variable costs are the costs that a firm incurs in the act of producing and they typically show diminishing marginal returns, which means that the cost of producing higher levels of output rises. In contrast, fixed costs are sunk costs that a firm must incur before producing any output and they should play no role in economic decisions about future production or pricing.