Fixed Costs Remain Constant Regardless of Output

Steps:

• Define fixed costs as expenses that do not change with production levels.
• Evaluate each option against this definition.
• Eliminate options that misrepresent fixed cost behavior.
• Confirm the option that aligns with the definition.

Why D is correct:

• Fixed costs, by definition, are unavoidable payments like rent or salaries that persist even at zero output, ensuring the business covers baseline expenses.

Why the others are wrong:

• A: Fixed costs exist in both short and long runs; the distinction is that all costs become variable in the long run.
• B: Raw materials and direct labor are variable costs, fluctuating with output, not fixed.
• C: Fixed costs stay constant and do not increase with output; only variable costs do.

Final answer: D