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Understanding Fixed Costs and Decisions
easy

In decision-making regarding whether to continue operations, businesses must consider their __________, which remain constant regardless of their level of production.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

variable costs

B

fixed costs

C

marginal costs

D

total costs

Understanding the Answer

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Answer

In decision-making about whether to continue operations, businesses must consider their fixed costs. Fixed costs are expenses that do not change based on how much a company produces or sells. For example, if a factory has to pay rent, that rent amount stays the same whether the factory makes 100 or 1,000 products. This is important because even if sales drop, the business still has to pay these fixed costs, which can affect its overall financial health. Therefore, understanding fixed costs helps businesses make informed choices about continuing or adjusting their operations.

Detailed Explanation

Fixed costs are expenses that do not change no matter how much a business produces. Other options are incorrect because Variable costs change with production levels; Marginal costs are the cost of making one more item.

Key Concepts

Fixed Costs
Business Decision-Making
Cost Analysis
Topic

Understanding Fixed Costs and Decisions

Difficulty

easy level question

Cognitive Level

understand

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