Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 7: Problem 20

Are there fixed costs in the long-run? Explain briefly.

Short Answer

Expert verified
In the long-run, all costs are considered variable because firms can adjust their production resources, such as workforce, facilities, and equipment, in response to changing market conditions or production requirements. While fixed costs are an essential part of short-run cost structures, they do not exist in the long-run due to this increased flexibility.

Step by step solution

01

Define fixed costs

Fixed costs are those expenses that do not vary with the level of output produced by a firm. Examples of fixed costs include rent, salaries of full-time employees, and insurance premiums. These costs are incurred even if the firm does not produce any output and must be paid regardless of the firm's production levels.
02

Explain fixed costs in the short-run

In the short-run, a firm's production capacity is limited by its existing facilities, equipment, and labor force. As a result, firms often have a mix of variable costs (costs that change with the level of production) and fixed costs. It is important for a firm to cover its fixed costs in the short-run, as it allows it to remain viable and competitive.
03

Discuss fixed costs in the long-run

In the long-run, all costs are variable. A firm can adjust its production resources (e.g., workforce, facilities, and equipment) in response to changing market conditions or production requirements. As a result, no cost is strictly fixed, and firms can make decisions on which resources to maintain or replace. In summary, while fixed costs are an essential part of short-run cost structures, they do not exist in the long-run as all costs become variable. This is because firms have more flexibility to adjust their resources and operations in the long-run.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Why will firms in most markets be located at or close to the bottom of the long-run average cost curve?

If two painters can paint 200 square feet of wall in an hour, and three painters can paint 275 square feet, what is the marginal product of the third painter?

What is a production function?

Average cost curves (except for average fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?

The WipeOut Ski Company manufactures skis for beginners. Fixed costs are \(\$ 30 .\) Fill in Table 7.16 for total cost, average variable cost, average total cost, and marginal cost. $$\begin{array}{llllccc} \hline \text { Quantity } & \begin{array}{l} \text { Variable } \\ \text { cost } \end{array} & \begin{array}{l} \text { Fixed } \\ \text { cost } \end{array} & \begin{array}{l} \text { Total } \\ \text { cost } \end{array} & \begin{array}{c} \text { Average Variable } \\ \text { cost } \end{array} & \begin{array}{c} \text { Average Total } \\ \text { cost } \end{array} & \begin{array}{c} \text { Marginal } \\ \text { cost } \end{array} \\ \hline 0 & 0 & \$ 30 & & & & \\ \hline 1 & \$ 10 & \$ 30 & & & & \\ \hline 2 & \$ 25 & \$ 30 & & & & \\ \hline 3 & \$ 45 & \$ 30 & & & & \\ \hline 4 & \$ 70 & \$ 30 & & & & \\ \hline 5 & \$ 100 & \$ 30 & & & & \\ \hline 6 & \$ 135 & \$ 30 & & & & \\ \hline \end{array}$$
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free