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Chapter 7: Problem 2

Give an example of a fixed cost and a variable \(\operatorname{cost}\)

Short Answer

Expert verified
One example of a fixed cost could be the rent for a business's office, which remains the same regardless of output. An example of a variable cost could be the cost of fabric for a clothing business, which increases with the level of output.

Step by step solution

01

Identify a Fixed Cost

A fixed cost does not change regardless of the output a business produces. This can include costs such as rent or salaries of permanent staff. An example of a fixed cost could be the rent a business pays for its office. This cost remains the same whether the business has a high output of products or a low output.
02

Identify a Variable Cost

A variable cost changes with the level of output or the amount of product produced. Common examples of variable costs are raw materials used in production or hourly wages for temporary or part-time workers. If, for instance, a business produces clothing, the cost of fabric would be a variable cost. The more items of clothing the business produces, the more fabric it will need, and hence the cost of fabric will increase.

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