21 Jan Fixed Cost Vs. Variable Cost
Fixed Cost Vs. Variable Cost
Problem: Organizations typically have high or low fixed costs. It is important to understand the difference between these two types of organizations and how their business decisions differ. One organization (American Airlines) must have high fixed costs and low variable costs, and the other organization (Netflix) must have low fixed costs and high variable costs. Companies with high fixed costs include manufacturing companies, whereas service companies might have low fixed costs. Chart the relationship between total cost and the number of units for each organization. Plot two lines on the graph: one for the organization that has high fixed costs and low variable costs, and one for the organization that has low fixed costs and high variable costs.
Make sure to:
– Explain how to balance fixed and variable costs.
– Explain Production Possibilities.
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