Fixed vs. Variable Costs Behavior

Steps:

• Statement 1: Fixed costs remain constant in total, so per-unit fixed costs = total fixed costs / output; higher output lowers per-unit amount.
• Statement 2: Variable costs = variable cost per unit × output; per-unit rate is constant regardless of output level.
• Statement 3: Total costs = fixed costs + variable costs; lower output reduces variable costs, so total costs decrease.
• Statement 4: Variable costs vary directly with output; lower output proportionally reduces total variable costs.

Why A is correct:

• A selects statements 1, 2, and 4, which align with definitions: fixed costs spread over units (per-unit falls with output), variable costs proportional to output (per-unit constant, total falls with output).

Why the others are wrong:

• B omits correct statement 2 on constant variable cost per unit.
• C omits correct statement 4 on decreasing variable costs with output.
• D includes incorrect statement 3 (total costs fall with output) and omits correct 1 and 4.

Final answer: A