Companies cannot recover fixed capacity costs when demand falls during an economic downturn.

Question

Quizplus · Accepted Answer

Fixed capacity costs refer to the expenses that a company incurs for maintaining its facilities and operations regardless of its level of production or sales. These costs include expenses for rent, depreciation of machinery and equipment, salaries of staff, and other overhead expenses. Since these costs are incurred irrespective of the level of demand for the company's products or services, the company cannot recover them when demand falls during an economic downturn. This results in lower profitability and financial losses for the company.

Companies Cannot Recover Fixed Capacity Costs When Demand Falls During