How are variable costs represented graphically?Group of answer choicesstarting at a given point and having a downward sloping line as activity increasesstarting at zero and having an upward sloping line as activity increasesthe intersection of the total costs and total revenue linesa horizontal line, staying the same irrespective of the level of activity
Question
How are variable costs represented graphically?Group of answer choicesstarting at a given point and having a downward sloping line as activity increasesstarting at zero and having an upward sloping line as activity increasesthe intersection of the total costs and total revenue linesa horizontal line, staying the same irrespective of the level of activity
Solution
The answer is "starting at zero and having an upward sloping line as activity increases".
Here's why:
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Variable costs are costs that change in proportion to the volume of goods or services that a business produces. In other words, when production increases, variable costs increase; when production decreases, variable costs decrease.
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When graphically represented, variable costs start at zero. This is because if there is no production activity (i.e., the production volume is zero), then there are no variable costs.
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As production activity increases, variable costs also increase. Therefore, the line representing variable costs on a graph slopes upward as activity increases.
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The slope of the line represents the variable cost per unit of activity. The steeper the slope, the higher the variable cost per unit.
Therefore, variable costs are represented graphically by starting at zero and having an upward sloping line as activity increases.
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