When starting a new business, most entrepreneurs might find it difficult to find opportunities to invest in ___________ in order to lower their expenses and produce more.

• A. Fixed costs
• B. Variable costs
• C. Capital
• D. Depreciation

Answer: (A)

When you want to produce more while lowering the cost per unit, focus on fixed costs and how they behave as you scale up. Fixed costs are the expenses that don’t change with the level of output in the short run—things like rent, salaries of certain staff, or capital investments such as machinery and facilities. By investing in fixed assets that raise your production capacity, you can spread these fixed costs over a larger quantity of output. As output expands, the fixed cost per unit falls, which helps lower total costs per unit and allows you to produce more efficiently.

Variable costs, in contrast, grow with output. Investing in them to try to lower costs doesn’t work the same way, because increasing production pushes up those costs as you produce more units. Capital and depreciation relate to the assets themselves and how their cost is recorded over time; while capital investments create the fixed-cost base that enables higher production, depreciation is an accounting charge that reflects wear on those assets, not a direct lever you pull to reduce costs per unit in the near term.

So the best fit is investing in fixed costs because expanding fixed-capacity investments can spread the overhead over more units and reduce the average cost of production as output increases.