Question

State any two differences between fixed cost and variable cost.

Hint:

Fixed costs = constant; Variable costs = change with output.

Answer 1

Step 1: Understanding the concept.
Costs in business are divided mainly into two types — fixed cost and variable cost — depending on how they behave with changes in production levels.
Step 2: Key differences.
1. Nature: Fixed cost remains constant irrespective of production level (e.g., rent, salaries). Variable cost changes with production volume (e.g., raw materials, electricity).
2. Relation with output: Fixed cost per unit decreases as output increases, while variable cost per unit remains constant.
Step 3: Conclusion.
Hence, fixed costs are constant in total but variable costs fluctuate directly with production.