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When production level is zero, then fixed cost is:
Zero
Negative
Positive
Equal to variable cost
- Option 1: Zero
Fixed costs remain constant regardless of production levels, so they are not zero when production is zero. They include rent, salaries, and other overheads.
- Option 2: Negative
Fixed costs cannot be negative. They are expenses that must be paid, like rent or salaries, even if no goods are produced.
- Option 3: Positive
Fixed costs are positive as they are incurred regardless of production levels. Examples include lease agreements and insurance.
- Option 4: Equal to variable cost
Variable costs change with production levels. Fixed costs do not, so they are not equal to variable costs when production is zero.
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