Economics Short Run Vs Long Run Costs Questions
In the long run, there are three types of costs:
1. Fixed costs: These are costs that do not change with the level of production or output. Examples include rent, insurance, and salaries of permanent employees.
2. Variable costs: These costs vary with the level of production or output. Examples include raw materials, direct labor, and electricity.
3. Semi-variable costs: Also known as semi-fixed costs, these costs have both fixed and variable components. They include expenses like utilities, maintenance, and depreciation of machinery.
It is important to note that in the long run, all costs become variable as firms have the flexibility to adjust their production levels and make changes to their inputs and resources.