Which statement defines fixed costs?

• A. Costs That Vary With Output
• B. Costs That Do Not Change Over Time Or With Output
• C. Costs That Are Always Recurring
• D. Costs That Are Taxes

Answer: (B)

Fixed costs are expenses that do not change with how much you produce, at least in the short run. They stay the same whether you make a little or a lot, such as rent, salaries of permanent staff, insurance, and depreciation. Because they don’t vary with output, the best description is a statement that fixed costs do not change over time or with output.

Costs that vary with output are variable costs, which increase as production goes up. Taxes aren’t inherently fixed in this sense, since many taxes depend on activity or income. And “always recurring” describes timing, not the fundamental behavior of costs with respect to production.