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Cost Of Production and Concept of Revenue — Economics STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsCost Of Production and Concept of Revenue3 Marks
Question
Describe the difference between fixed cost and variable cost.
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Answer

  • Classification of fixed cost and variable cost is for short period of time. For long term all expenses are variable.
  • Following differences are seen in fixed cost and variable cost.
  • For short period of time fixed cost has no relation with fluctuation of production.
  • Where the variable cost increases with production increase, it decreases if production decreases and it becomes zero if production stop.
  • Fixed cost curve is horizontal to $OX$ axis.
  • Where variable cost curve is starting from origin with positive slope.
  • Fixed cost has less importance in production system, so it is called complementary.
  • Variable cost has much importance in production system, so it is called main cost.
  • Classification of fixed cost and variable cost is not rigid.
  • It is connected with proportion of production.
  • Fixed cost is not related with size of production where variable cost is related with the size of production.
  • Most of the cost are seen between last two limitations.
  • e.g. In electricity bill, some charges are fixed and some charges are associates with consumption of units.

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