With a step fixed-cost function ________.
A) the cost varies with the changes in the activity
B) fixed cost is often approximated with a continuous variable-cost function
C) fixed cost changes proportionally with the level of activity
D) the cost remains the same over wide ranges of the activity in each relevant range

Question

Quizplus · Accepted Answer

With a step fixed-cost function, the cost remains the same over wide ranges of the activity in each relevant range. Once the activity level reaches a certain point, the cost will "step up" to a new level, hence the term "step fixed-cost." This is different from a variable-cost function, where the cost varies with changes in the activity level. Option A is incorrect as it describes a variable-cost function, and option B is incorrect as it approximates fixed cost with a continuous variable-cost function. Option C is also incorrect as it suggests that fixed cost changes proportionally with the level of activity, which is not the case with a step fixed-cost function.

With a Step Fixed-Cost Function ________