Question

Briefly explain what is meant by the term "fixed costs" and provide three examples of same. What determines a firm's level of fixed costs

Answer 1

A firm generally incurrs two type of costs and these are -

Fixed cost and variable cost

Fixed cost are those cost which are having constant value in the short run

the best example of these are building, machinery ,salaries.

As these can be constant for a a short run production but in the long run all costs become variable

As it is described above that the firm level fixed cost is determined by the level of production because as production increases then even the fixed cost become variable cost due to limited number of production and quantity output