Under the linear assumption, which statement is true?

• A. It assumes total costs rise exponentially with output.
• B. It assumes fixed costs per unit rise with activity.
• C. It assumes variable costs per unit fall as output increases.
• D. Total fixed costs remain constant and variable costs are a constant amount per unit.

Answer: (D)

Under a linear cost behavior, total costs are made up of a fixed amount that does not change with output and a variable amount that increases in direct proportion to output. This means total fixed costs stay constant no matter how much is produced, and the variable cost per unit stays the same as production changes. The total cost function is a straight line: TC = fixed costs + (variable cost per unit × quantity). The statement that matches this structure—fixed costs remaining constant in total and variable costs per unit being a constant amount—is correct. The other options imply nonlinear growth, rising fixed cost per unit with activity, or variable cost per unit that changes with output, which don’t align with the linear cost pattern.