SQA National 5 Economics Practice Exam

A cost is considered fixed when it remains constant regardless of changes in output levels. This means that even if a company produces more or fewer goods, the total amount of fixed costs does not change. Fixed costs typically include expenses such as rent, salaries of permanent staff, and insurance, which must be paid regardless of the company’s production volume.

In contrast, a cost that varies with output is classified as a variable cost, which fluctuates depending on the level of production. Other choices, such as incurring the cost once or monthly, do not adequately define the nature of fixed costs, as they do not specifically address the relationship between the cost and production levels. Therefore, the defining characteristic of fixed costs is their constancy in relation to production, aligning precisely with the chosen answer.