Economics Cost Of Production Questions
Fixed costs play a crucial role in determining the profitability of a product. These costs are incurred regardless of the level of production or sales and include expenses such as rent, salaries, and insurance. Since fixed costs remain constant, they need to be spread over the total units produced, resulting in a per-unit cost. The higher the fixed costs, the higher the per-unit cost, which can reduce profitability. Therefore, it is essential for businesses to carefully manage and control fixed costs to ensure that the product's selling price covers these expenses and generates a profit.