Fixed and Variable Costs

Fixed costs remain for a business even where no output is produced. They don’t change as output increases in the ‘short run’.

After a while the output may be too large for the capacity of the business. In the ‘long run’, fixed costs may change for a new range of activity.

Fixed costs are costs required to keep the business going or operational.  The office has to keep running even if nothing is produced.

Examples of fixed costs are the wages of office staff who work even where the factory is not operating.

Variable costs are costs that ↑ increase as output increases. Examples of these are costs that are directly related to the output being produced such as materials directly used in production.