Fixed cost and variable

• Fixed costs


  • Don't change with output
  • Rent on a factory
  • Business rates
  • Senior managers' basic salaries
  • Cost of new machinery
• When output increases


  A business makes more use of the facilities it's already got. The cost of those facilities doesn't change.
• Variable costs

  • Rise and fall as output changes
  • Hourly wages
  • Raw material costs
  • Packaging costs for each product
• Total variable costs

  Average variable cost (AVC) x quantity produced
• Total costs

  Fixed costs + variable costs