(a) Fixed cost: Fixed costs are those costs which remain fixed in amount irrespective of changes in the volume of output during a given period of time. Such costs do not change with changes (increase or decrease) in the level of activity upto a certain limit. For Example: A sugar mill wholly remains closed for about three months during a year due to non availability of raw material (sugar-cane). But the mill-owner has to incur certain costs like the rent of factory building, factory manager’s salary, insurance premiums and municipal taxes. These costs are called fixed costs or supplementary costs or overhead costs. They remain the same irrespective of quantity of production during the short period. Fixed cost line is parallel to X axis indicating that the fixed costs remain constant. 

(b) Variable Cost: Variable costs are those costs which vary in amount which changes in the level of output or activity. Such costs increase and decrease in same proportion in which the level of output increases or decreases. Variable costs vary in total amount but remain constant per unit production. 

For example: When the level of output increases from 3,000 units to 4,000 units, the amount of variable costs increase from Rs. 15,000 to 20,000. In this case, the variable cost per unit remains unchanged at Rs. 5 (15,000 ÷ 3,000 and 20,000 ÷ 4,000). Thus, there js a linear relationship between volume of production and total variable costs. 

Semi-Variable Cost: Semi variable costs are those costs which vary but not in direct proportion to changes in the volume of production. They are a combination of fixed and variable costs. Such costs are neither perfectly fixed nor absolutely variable. 

For example: Telephone charges – Rent remains fixed whereas the charges for calls made during a month are variable. 

(c) First two stages of Product Life Cycle: 

1. Introduction: In this stage, the new product will be launched in the market. Cost incurred in launching the product will be high and sales may be low. Since the product is of a new variety, competition is virtually absent, market is limited and prices are relatively high. This stage is also very risky because a high percentage of new products fail during this period. Effective strategies like introductory offer, money-back guarantee, removing technical mid other deficiencies etc., may be employed. 

2. Growth: In this stage, Demand and Sales increase and competitors enter the market. Having covered its research and development costs the product becomes profitable. In this stage, promotional focus shifts from “buy my product to buy my brand”. Strategies like heavy advertising, expanding distribution channels and keeping the price at competitive levels may be employed.