Fixed Costs vs Variable Costs
Fixed Costs and Variable Costs are two Production & Costs concepts in AP Economics that students often mix up. In short: fixed costs is fixed Costs are costs that do not change with the level of output in the short run. Meanwhile, variable costs is variable Costs are costs that change directly with the level of output in the short run. Here is how they compare side by side.
Fixed Costs are costs that do not change with the level of output in the short run.
These include expenses like rent, insurance, or salaries for permanent staff that must be paid even if production is zero. Fixed costs are unavoidable in the short run regardless of output levels.
Variable Costs are costs that change directly with the level of output in the short run.
These include expenses like wages for hourly workers, raw materials, and utilities that increase as more output is produced and fall when output decreases.
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