Question

On a separate sheet of paper, copy the multi- flow map below. organize information on how firms determine their total costs by completing the multi flow map with examples of fixed and variable costs.

Answer 1

Answer:

The correct answer is the definition of fixed and variable costs.

Explanation:

The cost of production of a company can be subdivided into the following elements: rents, wages and wages, depreciation of capital goods (machinery and equipment, etc.), the cost of raw materials, interest on operating capital , insurance, contributions and other miscellaneous expenses. Different types of costs can be grouped into two categories: fixed costs and variable costs.

Fixed costs

The fixed costs are those that the company necessarily has to incur when starting its operations. They are defined as costs because in the short and intermediate term they remain constant at different levels of production. As an example of these fixed costs, executive salaries, rents, interest, insurance premiums, depreciation of machinery and equipment and property taxes are identified.

Variable costs

Variable costs are those that vary with the volume of production. The total variable cost moves in the same direction of the production level. The cost of raw material and the cost of labor are the most important elements of variable cost.

The decision to increase the level of production means the use of more raw material and more workers, so the total variable cost tends to increase production. The variable costs are, then, those that vary as production varies.