Farm Business Management Practice Exam

Costs tied to owning and investing in farm assets are fixed costs because they do not change with the level of production in the short run. When you invest in durable assets like buildings or machinery, you incur ongoing commitments such as depreciation, loan interest, insurance, and property taxes that persist regardless of how much you produce. These costs are characteristic of long-term ownership and investment. In contrast, variable costs fluctuate with output (like feed and labor tied to production), mixed costs have both fixed and variable parts, and sunk costs are past expenditures that cannot be recovered and don’t guide current decisions.