Which statement best describes fixed costs in relation to production level?

• A. Fixed costs change with production level.
• B. Fixed costs are only variable.
• C. Fixed costs are based on per-unit production.
• D. Fixed costs do not change with production level.

Answer: (D)

Fixed costs stay the same no matter how many units you produce, at least within a given period or production range. That means whether you churn out zero units or thousands, the total amount you pay for things like rent, salaries of permanent staff, or insurance doesn’t change. The reason this is the best description is it captures the essence of fixed costs: they aren’t tied to the level of output. As you produce more, the total fixed cost doesn’t rise, but the cost per unit falls because you’re spreading that same fixed amount over more units. In contrast, costs that vary with production increase with output, and some costs aren’t fixed per unit but are driven by quantity. There can be occasional step changes where fixed costs jump after crossing a threshold, but within a chosen production level they remain constant.