3.5.3 Fixed Costs & Variable Costs
Completion requirements
Variable costs change with productivity. Fixed costs remain the same. If you are a baker, for example, the cost of flour is variable depending on how many cupcakes you make. The rent for your store, however, is fixed. You pay the same amount of rent
whether you are baking cupcakes, or not.
Suppliers increase or decrease production to meet their fixed and variable costs, to meet the product demand, and to earn the highest profits they can.
Flour / Variable Expense
Bakery Rent / Fixed Expense
Suppliers increase or decrease production to meet their fixed and variable costs, to meet the product demand, and to earn the highest profits they can.