Fixed costs exist only in:
A. the long run B. capital-intensive markets C. the short run D. labor-intensive markets E. online markets
The correct answer and explanation is:
The correct answer is C. the short run.
Explanation: Fixed costs are the costs that do not vary with the level of output produced. They are incurred even if the firm is producing nothing. In economics, fixed costs exist primarily in the short run. This is because, in the short run, some factors of production, such as capital (e.g., machinery, buildings), cannot be easily adjusted. These costs remain constant regardless of the quantity of goods or services produced by the firm.
For example, a factory may have to pay rent for its building or salaries to employees that do not change with the production level. These expenses are classified as fixed costs. In contrast, variable costs fluctuate with the level of production. For instance, the costs of raw materials or labor hours directly linked to production are variable costs.
In the long run, all costs become variable. This is because, over time, firms can adjust all inputs, including capital. In the long run, firms can change their scale of production, acquire new technology, or even exit the market, making all costs, including what were once considered fixed costs, subject to change. Thus, in the long run, there are no fixed costs because all costs can be adjusted based on production needs.
In summary, fixed costs are characteristic of the short run because firms cannot fully adjust all inputs in this period. These costs are incurred regardless of output, while in the long run, firms can adjust their capital and other resources to match the level of production.