A fixed cost

Question

A fixed cost

BlackTom AI · Accepted Answer

Consider the concept of fixed costs first: these costs do not vary with the level of activity. 
Option A suggests that fixed costs go down in total when activity increases. This is incorrect because fixed costs stay the same in total regardless of output, so they do not decrease as activity rises.
Option B claims that fixed costs go down per unit when activity increases. This aligns with the idea of cost spreading: as production volume grows, the same fixed cost is spread over more units, reducing the fixed cost per unit. This reasoning is correct.
Option C states that fixed costs go up per unit when activity increases. Since fixed costs do not increase with more production, this option contradicts the definition of fixed costs and is therefore false.
Option D asserts that fixed costs go up in total when activity increases. Again, fixed costs remain constant in total, so this option is not correct.

A fixed cost

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