What happens to each of these as volume increases: total fixed cost, total variable cost, fixed cost per unit, variable cost per unit.

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justaguide | College Teacher | (Level 2) Distinguished Educator

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Fixed costs refer to an amount that needs to be spent irrespective of how many units are manufactured. This includes items like land, machinery, infrastructure and other factors essential to produce anything. An example would be the cost of a piece of land on which the production facility is built. If the land costs $100000, this is fixed as $100000 has to be spent whether 10 units are manufactured using the facility or 1000.

Variable costs refer to the costs those that depend on the number of items produced. This would include raw material, labor, etc. An example of variable costs is the amount spent on buying metal that is required to build a car. If one car requires 100 kg of aluminum, we need to buy 100000 kg for 1000 cars whereas for 10 cars only 1000 kg need to be bought. So the amount spent on buying the metal varies with the number of cars manufactured.

As volume increases, the total fixed cost remains the same; the total variable cost increases; the fixed cost per unit decreases; and the variable cost per unit remains the same.

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