Economics Short Run Vs Long Run Costs Questions Medium
In the short-run, firms incur both fixed costs and variable costs. Fixed costs are expenses that do not change with the level of production, such as rent, insurance, and salaries of permanent employees. Variable costs, on the other hand, are expenses that vary with the level of production, such as raw materials, labor, and utilities.
In the long-run, firms incur additional costs known as semi-variable costs or semi-fixed costs. These costs include expenses that have both fixed and variable components, such as equipment leasing or maintenance costs. In the long-run, firms also have the flexibility to adjust their fixed costs, such as by expanding or reducing their production facilities or changing their organizational structure.
It is important to note that in the long-run, all costs become variable, as firms have the ability to adjust their production levels and make changes to their inputs and resources. This flexibility allows firms to optimize their cost structure and adapt to changing market conditions.