Question

Differentiate between Fixed Costs and Variable Costs.

Answer 1

Basis of Difference	Fixed Costs	Variable Costs
1. Transformation	Fixed costs do not change with change in quantity of output.	Variable costs change with change in quantity of output.
2. Period	It is a long period concept.	It is a short period concept.
3. Situation of zero	Fixed costs remain the same whether output is zero or maximum.	Variable cost as zero when output is zero. These costs increase when output increases and decrease when output decreases.
4. Factors	It is related to the fixed factors.	It is related to the variable factors.
5. Continuance	A firm can continue production even if there is loss of fixed costs.	Production will be continued by a firm, only if its variable costs are recovered.
6. Examples	Rent, wages of permanent staff, license fee, cost of plant and machinery, etc.	Cost of raw material, wages of casual labour, expenses on electricity, etc.