CA Foundation · Business Economics · Theory of Production and Cost
In the short run, which of the following is an example of a fixed cost for a bakery owned by Imran in Lucknow?
The monthly rent of the bakery shop is a fixed cost. It must be paid at the same amount regardless of how many loaves are baked, whereas flour, piece-rate wages and usage-based electricity change with output and are therefore variable costs.
- ACost of flour used in baking
- BWages paid per loaf to piece-rate workers
- CMonthly rent of the bakery shopCorrect
- DElectricity charged on the basis of oven hours used
Explanation
Fixed costs do not change with the level of output in the short run. The monthly shop rent stays the same whether the bakery makes 100 or 1,000 loaves. Flour, piece-rate wages and usage-based electricity all rise as output rises, so they are variable costs.
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