Multiple choice

Which of the following is most likely to be a variable cost for a firm?

  1. The interest payments on loans.

  2. The franchiser's fee that a restaurant must pay to the national restaurant chain.

  3. The monthly rent on office space that is leased for a year.

  4. The payroll taxes that are paid on employees' wages.

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Variable costs change with output level. Payroll taxes are levied as a percentage of wages paid to employees, so when employment (and thus output) changes, payroll taxes vary proportionally. Interest payments, franchise fees, and monthly rent are fixed - they don't automatically change with output in the short run.

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