Question
In: Economics
Consider the following costs associated with pharmaceutical drug production. Which of the following are variable costs...
Consider the following costs associated with pharmaceutical drug production. Which of the following are variable costs and which are fixed costs?
a) Research and development
b) Manufacturing costs
c) Market costs
Solutions
Expert Solution
Answer: Option (b) and (c) are variable costs and while option (a) is a fixed cost.
Variable Cost: It may increase or decrease with the changes in the level of production. When the level of production increases the variable costs increases and vice-versa.
Fixed cost: It doesn’t change with the changes in the level of production. It remains constant whatever may the volume of production.
Market Costs: It includes the cost incurred by the firm when it sells its products, it includes costs incurred on the advertising, promotion of goods, distribution of goods, market research, etc.
a) Research and development included in the fixed cost, as the cost incurred by the firm doesn’t change with the changes in the volume of production.
b) Manufacturing costs considered as variable costs, as it changes with the changes in the volume of production.
c) Market costs considered as variable costs as it changes with the changes in the marketing conditions and changes with the changes in the volume of production.
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