What are fixed costs? Provide two examples.

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Multiple Choice

What are fixed costs? Provide two examples.

Fixed costs are expenses that stay the same regardless of how much you produce, at least within the normal operating range. They’re incurred even if output is zero, so they don’t move with production levels. Two classic examples are rent for a factory or office space and salaries for permanent staff—they’re paid whether you’re producing a lot or a little. In contrast, costs that vary with production (like materials used per unit or sales commissions) change with output. One-time startup or legal fees aren’t ongoing production costs, and overtime or energy surcharges that kick in only at higher activity aren’t fixed either, since they depend on how much you produce.

Fixed costs are expenses that stay the same regardless of how much you produce, at least within the normal operating range. They’re incurred even if output is zero, so they don’t move with production levels. Two classic examples are rent for a factory or office space and salaries for permanent staff—they’re paid whether you’re producing a lot or a little.

In contrast, costs that vary with production (like materials used per unit or sales commissions) change with output. One-time startup or legal fees aren’t ongoing production costs, and overtime or energy surcharges that kick in only at higher activity aren’t fixed either, since they depend on how much you produce.

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