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- Economics
21. total cost in the short run is classified into fixed costs and variable costs. which one of the following is a variable cost ? cost of row materials (2) cos
21. Total cost in the short run is classified into fixed costs and variable costs. Which one of the following is a variable cost ? Cost of row materials (2) Cost of cquipment (3) Interest payment on past borrowings (4) Payrnent of rent on building
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Nidhi taparia Best Answer
The question seems tricky at first so let's try to attempt it using elimination method. Option (2) is definitely a fixed cost because equipment qualifies as fixed factor. It cannot be varied with output. Hence (2) is not right. Option (3) is also incorrect because whether the firm produces one unit of output or thousand. Past borrowings cannot be altered and the interest on them will have to be paid. Hence (3) is not right. Option (4) is again incorrect because land and building are fixed factors. The rent has to be borne whether or not output is produced, for a specified period of time. Hence the correct answer is (1). Raw materials can be increased to produce more output and decreased to reduce output. They are variable factors of production.