Expand the relationship between costs (fixed and variable) and production.
October 26, 2020 | Education|
Variable costs – costs that vary depending on the volume of output – raw materials and supplies, workers’ wages, transportation costs, etc. In the initial (organizational) period, variable costs grow faster than the volume of production increases, then their growth slows down. In the future, however, when the law of diminishing returns comes into effect, variable costs begin to outpace production growth.
Fixed costs – costs that do not depend on the volume of production and arise even when production has not yet begun – rent, security costs, real estate tax, etc. When the volume of production changes, fixed costs do not change.
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