What does the linear assumption state?

• A. Total fixed costs rise as output increases, and variable costs fall per unit.
• B. Total cost is purely variable.
• C. There is no fixed cost.
• D. Total fixed costs remain constant and variable costs are a constant amount per unit.

Answer: (D)

In cost behavior, the linear assumption means costs can be split into a fixed part that doesn’t change with output and a variable part that changes in direct proportion to output. This makes total cost a straight-line relationship: total cost equals fixed costs plus (variable cost per unit × units). The statement describing fixed costs as constant and variable costs per unit as a constant amount fits this idea exactly, so it’s the correct interpretation. The other options conflict with linearity—for example, fixed costs that rise with output would break the straight-line pattern, and omitting fixed costs or declaring there are none also contradicts the assumption.