Future Business Leaders of America (FBLA) Agribusiness Practice Test

Which category of costs does not vary based on production levels, even if the production is zero?

1. Variable Costs

2. Fixed Costs

3. Opportunity Costs

4. Marginal Costs

The correct answer is: Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales, meaning they remain constant regardless of whether a company produces goods or not. Examples of fixed costs include rent for a factory, salaries of permanent staff, and insurance. Even when production is zero, these costs still need to be paid, thereby highlighting their nature of remaining unaffected by production fluctuations. In contrast, variable costs fluctuate directly with the volume of production. As production increases or decreases, variable costs like raw materials and labor directly associated with the manufacturing process will change accordingly. Opportunity costs represent the potential benefits an individual or business misses out on when choosing one alternative over another. These costs are not fixed or variable but rather depend on the choices made. Marginal costs are the additional costs incurred when producing one more unit of a good or service. They are closely tied to production levels and are influenced by changes in variable costs. Thus, the defining feature of fixed costs is their stability regardless of production levels, making them the correct answer to the question.