Question

Demonstrate your own understanding of the difference between a fixed cost and a variable cost of production for a business firm in the short run. I would really appreciate it if you explained this in detail, not just the difference between fixed and variable cost but rather the difference between them in the short run. At least 2 paragraphs please, I will really appreciate it. Thank you in advance!

Answer 1

Fixed cost ,- It is the cost that remain constant throughout the production. Whether output increases or decreases, fixed cost remain the same. For example , salary of regular employees, rent of land. Fixed cost is permanent cost.

It is the cost which is incurred by producer for producing the output .fixed costs, indirect costs or overheads are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as interest or rents being paid per month, and are often referred to as overhead costs.

Variable cost in short time period- it varies with variation in production . As output increase , variable cost increase . At zero output , variable cost is zero. In the short time period it is avoidable cost.