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Why does a firm incur fixed costs over the short run when its output is zero?
Wiki User
∙ 11y ago
There are some things a company always has to pay, whether they manage to sell something or not. This typically includes things like salaries, rent for the building (or maintenance, if they are the owners), the cost of electricity, and interest payments if they borrowed money from the bank.
Wiki User
∙ 11y ago
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If a firm decides to produce no output in the short run its costs will be?
its fixed cost
Do fixed and variable costs affect short-run marginal cost?
Fixed costs do not affect short-run marginal cost because they are just that- fixed. They are not dependent on quantity when it changes and does not vary directly with the level of output. Variable costs, however, do affect short-run marginal costs.
In the short run the Sure-Screen T-Shirt Company is producing 500 units of output Its average variable costs are 2.00 and its average fixed costs are 50 The firm's total costs?
1,250
Does committed fixed costs have a short term planning horizon-usually one year?
False
Relationship between total fixed cost and output?
A. Total fixed cost and output:TFC refers to total money expenses incurred on fixed inputs like plant, machinery, tools & equipments in the short run. Total fixed cost corresponds to the fixed inputs in the short run production function. TFC remains the same at all levels of output in the short run. It is the same when output is nil. It indicates that whatever may be the quantity of output, whether 1 to 6 units, TFC remains constant. The TFC curve is horizontal and parallel to OX-axis, showing that it is constant regardless of output per unit of time. TFC starts from a point on Y-axis indicating that the total fixed cost will be incurred even if the output is zero. In our example, Rs 360=00 is TFC. It is obtained by summing up the product or quantities of the fixed factors multiplied by their respective unit price.
What is the difference between short-run costs and long-run costs?
For a given configuration of plant and equipment, short-run costs vary as output varies. The firm can incur long-run costs to change that configuration. This pair of terms is the economist's analogy of the accounting pair, above, variable and fixed costs
If a firm decides to produce no output in the short run its costs will be?
its fixed cost
Do fixed and variable costs affect short-run marginal cost?
Fixed costs do not affect short-run marginal cost because they are just that- fixed. They are not dependent on quantity when it changes and does not vary directly with the level of output. Variable costs, however, do affect short-run marginal costs.
Why it is sometimes difficult to separate costs into variable costs and fixed costs?
Some costs are semi-variable, e.g. electricity, maintenance, and rise with output but not inproportion. Labour may be fixed in the short run.
Why it is sometimes difficult to separate costs into variable and fixed costs?
Some costs are semi-variable, e.g. electricity, maintenance, and rise with output but not inproportion. Labour may be fixed in the short run.
In the short run the Sure-Screen T-Shirt Company is producing 500 units of output Its average variable costs are 2.00 and its average fixed costs are 50 The firm's total costs?
1,250
What are the three types of costs company might occur how do they differ?
1. Fixed costs. These types of costs do not vary with output in the short term. An example might be rent costs for premises. 2. Variable costs. These are costs that vary directly with output and will be business specific. A manufacturing industry making plastic widgets will see the cost of their plastic raw material vary directly with production. 3. Semi-variable costs, or 'stepped' costs. These are costs fixed over a small range of output but variable over a longer range of output particularly at certain critical levels. They may 'step-up' as with utility bills or 'step-down' as with quantity discounts. Please note that all costs are variable costs if you take a long enough time frame.
Why are variable costs more relevant than fixed costs in short-term decision making?
Fixed costs are costs that cannot be changed in the short-term without causing significant harm to the organization. Because you cannot change them, you should not consider them in comparative analysis of alternatives.
For a firm to operate in the shortrun the total revenue must at least be equal to Why?
A firm would still operate if revenues are below total coots, but not if revenues are below variable costs. The reason is that as long as revenues are above variable costs, the firm will earn a difference to contribute to the fixed costs (fixed costs are costs that a company has to pay in the short-run whether it operates or not). If the firm stops operating in the short-run, it will have to pay for the full fixed costs (e.g., rent, some fixed labour) If revenues are below variable costs, for every unit of production, the company loses the difference and does not contribute to the fixed costs. It is more economical to shutdown in the short-run.
Does committed fixed costs have a short term planning horizon-usually one year?
False
Relationship between total fixed cost and output?
A. Total fixed cost and output:TFC refers to total money expenses incurred on fixed inputs like plant, machinery, tools & equipments in the short run. Total fixed cost corresponds to the fixed inputs in the short run production function. TFC remains the same at all levels of output in the short run. It is the same when output is nil. It indicates that whatever may be the quantity of output, whether 1 to 6 units, TFC remains constant. The TFC curve is horizontal and parallel to OX-axis, showing that it is constant regardless of output per unit of time. TFC starts from a point on Y-axis indicating that the total fixed cost will be incurred even if the output is zero. In our example, Rs 360=00 is TFC. It is obtained by summing up the product or quantities of the fixed factors multiplied by their respective unit price.
A horizontal short-run aggregate supply SRAS curve implies that in the short run?
In the short run, prices are fixed and firms produces output to meet demands. So, firms take prices as given and produce output to meet desired expenditure.
