Which of the following statements about fixed costs for digital products is true?

• A. Fixed costs for digital products are always lower than variable costs.
• B. Fixed costs for digital products are typically high due to initial development and setup expenses.
• C. Fixed costs for digital products increase with each additional unit sold.
• D. Fixed costs for digital products are eliminated once the product is launched.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of fixed costs. Fixed costs are expenses that do not change with the quantity of output produced. They remain constant regardless of how many units are sold.
2. Step 2: Recognize that for digital products, fixed costs often include initial development, design, and setup expenses. These costs are typically high because creating the product requires significant upfront investment.
3. Step 3: Analyze the relationship between fixed costs and variable costs. Variable costs change with the number of units produced or sold, such as costs for materials or distribution. For digital products, variable costs per unit are usually very low or close to zero.
4. Step 4: Evaluate the statements given: Fixed costs for digital products do not increase with each additional unit sold because they are fixed, not variable. Also, fixed costs are not eliminated after launch; they are sunk costs already incurred.
5. Step 5: Conclude that the true statement is that fixed costs for digital products are typically high due to initial development and setup expenses, reflecting the nature of fixed costs in digital production.