Which of the following statements is true regarding fixed costs and variable costs in economics?

• A. Neither fixed nor variable costs are controllable.
• B. Both fixed and variable costs are equally controllable.
• C. Variable costs are often more controllable than fixed costs.
• D. Fixed costs are often more controllable than variable costs.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definitions of fixed costs and variable costs. Fixed costs are expenses that do not change with the level of output produced, such as rent or salaries. Variable costs change directly with the level of production, like raw materials or hourly wages.
2. Step 2: Consider the concept of cost controllability. Controllable costs are those that a firm can influence or adjust in the short run, while uncontrollable costs are typically fixed and must be paid regardless of production decisions.
3. Step 3: Analyze why variable costs are often more controllable. Since variable costs vary with production, a firm can decide to produce more or less, thereby increasing or decreasing these costs accordingly.
4. Step 4: Contrast this with fixed costs, which usually remain constant over a relevant range of output and are often contractual or long-term commitments, making them less flexible or controllable in the short run.
5. Step 5: Conclude that the statement 'Variable costs are often more controllable than fixed costs' is true because firms can adjust production levels to influence variable costs, whereas fixed costs are generally fixed and less adjustable.