Question

find the terms "Fixed Cost" & "Variable Cost":

1. Explain the terms in detail.

2. Explain how the cost of energy for the hypothetical energy company, Canfield Energy Company can be both a fixed cost and a variable c

Answer 1

1. Fixed costs do not vary with output. Examples of fixed costs are rent, insurance, salaries of management officials. Variable costs vary with output. Examples are wages, raw material, spare parts.

2. Cost of energy is both fixed and variable. It is a fixed cost in the sense that the energy company reguires energy to run its office, factory and other facilities whether or not output is produced.

Cost of energy is variable, since more energy is required to produce more output.