A Level Economics AQA Practice Exam

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What are fixed costs?

Costs that vary with output levels
The costs of raw materials in production
Costs that do not change regardless of the amount of output produced
Costs related only to labor

The correct answer is: Costs that do not change regardless of the amount of output produced

Fixed costs are defined as costs that do not change regardless of the level of output produced by a business. These costs remain constant over a certain range of production and can include expenses such as rent, salaries of permanent staff, and insurance. For example, if a company pays $1,000 in monthly rent, that cost will remain the same whether the company produces 10 units or 1,000 units of its product during that month. This characteristic of fixed costs contrasts with variable costs, which fluctuate depending on the output level. Understanding fixed costs is crucial for firms when planning their budgets and determining their break-even points, as these costs contribute to the overall financial commitments that need to be met, regardless of sales or production levels.