Commercial Applications
Which of the following best describes a fixed cost?
- A cost that remains at the same level up to a particular level of output.
- The cost changes with levels of output.
- A cost that remains at the same level when output increases.
- None of these
Cost
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Answer
A cost that remains at the same level up to a particular level of output.
Reason — Fixed costs remain constant in total amount irrespective of changes in volume of output, but only upto a certain limit (the relevant range). Beyond this limit, additional capacity/facilities may be required and fixed cost may step up. Option 3 is incomplete because it only mentions "when output increases" without the relevant-range qualifier; option 1 is more precise.
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