Economics Short Run Vs Long Run Costs Questions Medium
In economics, fixed costs refer to expenses that do not change with the level of production or output in the short-run and long-run. These costs are incurred regardless of the quantity of goods or services produced.
In the short-run, fixed costs are those expenses that a firm must pay regardless of its level of production. These costs include items such as rent, insurance, property taxes, and salaries of permanent employees. Short-run fixed costs are considered to be sunk costs, meaning they cannot be easily changed or recovered in the short-term. For example, if a firm decides to shut down its operations temporarily, it will still have to pay its fixed costs.
In the long-run, fixed costs can be more flexible as firms have the ability to adjust their production capacity. This means that in the long-run, firms have the opportunity to make changes to their fixed costs by altering the size of their facilities, relocating to a different location, or investing in new technology. For instance, a firm may decide to expand its production facility or downsize its workforce, which would result in changes to its fixed costs.
It is important to note that while fixed costs remain constant in the short-run, they can vary in the long-run. This is because in the long-run, firms have the ability to make adjustments to their fixed costs to optimize their production and minimize expenses. However, in both the short-run and long-run, fixed costs are essential for a firm to operate and are incurred regardless of the level of output.