Fixed and Variable Costs Flashcards

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Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

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What is a fixed cost?

A cost that stays the same even if the firm makes more or fewer goods.

What is a variable cost?

A cost that changes with how many goods or services are produced.

Give two examples of fixed costs for a business.

Rent and insurance.

Give two examples of variable costs for a business.

Raw materials and packaging.

If output increases, what happens to total fixed cost?

It stays the same.

If a firm makes zero units, which costs still have to be paid?

Fixed costs, like rent and insurance.

How do you calculate total variable cost (TVC)?

Multiply the variable cost per unit by the number of units.

How do you calculate total cost (TC) from fixed and variable costs?

Add total fixed cost and total variable cost: TC = TFC + TVC.

A firm’s fixed costs are £150. Variable cost is £4 per unit. It makes 25 units. What is the total variable cost?

£100. 25 × £4.

A firm’s fixed costs are £150. Variable cost is £4 per unit. It makes 25 units. What is the total cost?

£250. Fixed £150 plus variable £100.