General Certificate of Secondary Education (GCSE) Economics Practice Exam

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What type of cost rises or falls depending on the amount produced?

Fixed costs

Variable costs

Variable costs are expenses that change in direct proportion to the level of production. As a business increases its output, it incurs higher costs for materials, labor, and other resources that are directly tied to the quantity produced. Conversely, if production decreases, these costs will also decline.

This dynamic between production levels and costs is essential for businesses as it helps them manage budgets and pricing strategies effectively. Fixed costs, on the other hand, remain unchanged regardless of how much is produced, making them unrelated to production levels. Average costs are influenced by both fixed and variable costs and represent the cost per unit of output, while opportunity costs are not directly tied to production levels but rather to the potential benefits lost when choosing one alternative over another. This distinction highlights why variable costs are the correct choice in this context.

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Average costs

Opportunity costs

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