Question

Electricity tariff is increased for the commercial use. Would it affect fixed cost or variable cost of the industry? Explain with a reason.

Answer 1

Electricity cost is a component of variable cost, not the fixed cost. This is because, use of electricity varies with variation in output. More production of output will use more electricity and thus the amount paid as tariff will be high. Accordingly, increase in electricity tariff would increase variable cost of the industry.