In discussing the operation of his automobile, a doctor once observed that gasoline is a fixed cost because the cost per gallon is relatively stable. Insurance, on the other hand, is a variable cost because the cost per mile varies inversely with the number of miles driven. Comment on the doctor's observation. 

 

 

B.Freddie's company has mostly fixed costs and Valerie's company has mostly variable costs. Which company has the greatest risk of a net loss? Explain why?

 

C.Define the term "relevant range" and explain its importance in understanding cost behavior.