Which of the following best describes fixed costs in economics?

• A. Costs that vary directly with the price of the product
• B. Costs that decrease as production increases
• C. Costs that increase as more units are produced
• D. Costs that do not change with the level of output produced

Answer: (D)

Verified step by step guidance

1. Understand the definition of fixed costs: Fixed costs are expenses that do not change regardless of the quantity of goods or services produced within a certain range of output.
2. Recognize that fixed costs remain constant even if production increases or decreases, meaning they are not dependent on the level of output.
3. Contrast fixed costs with variable costs, which do change as production levels change (e.g., raw materials, labor directly tied to production).
4. Analyze each option given: costs that vary with price, costs that decrease with production, and costs that increase with production are all characteristics of variable costs or other cost behaviors, not fixed costs.
5. Conclude that the best description of fixed costs is 'Costs that do not change with the level of output produced' because this matches the fundamental economic definition of fixed costs.