As the level of activity moves outside of the relevant range, fixed costs increase or decrease in discrete steps.
In accounting and economics, fixed costs—also referred to as indirect costs or overhead costs—are costs incurred by a company that are independent of the volume of products or services the company produces. Like interest payments or monthly rent, they frequently occur again. The majority of these expenses are capital expenses.
The activity range (like production or sales) that these relationships are valid for is the relevant range. For instance, if a plant is already at capacity, boosting production would require additional fixed cost investment to either lease or construct a new factory or to expand the current one.
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