Question

As a firm produces more units of a good, its
a.
fixed costs remain constant in the short run and its variable costs rise.
b.
variable costs decline in the short run and its fixed costs rise.
c.
fixed and variable costs remain constant in the short run.
d.
variable costs remain constant in the short run and its fixed costs fall.
e.
none of the above

Answer 1

Answer:

fixed costs remain constant in the short run and its variable costs rise.

Explanation:

Fixed costs remain contact in a period. They are mostly indirect expenses in the production process. Examples include rent, administrative salaries, and depreciation.

Variable costs are the expense that varies with changes in the production level. They have a direct and proportionate relationship with the production level. As input increases, variable costs increase at the same rate.

In the short run, which is within the same financial period, fixed cost remain cost while variable costs will increase or decrease depending on the production level. In the long run, which is a combination of several financial periods, both fixed cost and variable cost change at different rates.