Can you define fixed and variable costs Can you give some ex

Can you define fixed and variable costs? Can you give some examples?

Solution

All the costs faced by companies can be broken into two main categories: fixed costs and variable costs.

Fixed costs are costs that are independent of output. These remain constant throughout the relevant range and are usually considered sunk for the relevant range (not relevant to output decisions). Fixed costs often include rent, buildings, machinery, etc.

Variable costs are costs that vary with output. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc.