Question

Which of the following is a variable cost in the short run?

• A. Rent of the factory.
• B. Wages paid to the factory labour.
• C. Interest payments on borrowed financial capital.
• D. Payment on the lease for factory equipment.

Answer 1

The correct option is B Wages paid to the factory labour.

Wages paid to the factory labour are costs that are directly proportional to the level of production. If zero output is being produced then these costs do not have to be incurred. These costs vary with the level of output produced. Therefore, they are classified as variable costs. Fixed costs are indirect costs and have to be paid irrespective of the level of production. Even if zero output is being produced these costs have to be incurred. These costs include rent of the factory, interest payments on borrowed financial capital, payment on the lease for factory equipment.