Question

How does a firm deal with fixed and variable costs if a business slows down... ?

Answer 1

When the business slows down,the firms fixed cost are constant and the business cannot make changes in its fixed cost such as factory rent , cost of manager, cost of the equipments used so the firm has to incur them even when there is no profit.

Whereas the variable costs of the firm can be changed as the business can hire less labor so its wage payment decreases and decrease the costs of inputs.

So,when the business slows down,the firm will decrease its variable cost to minimize its losses.