Answer:
Variable costs are costs that vary with production. If production rises, the variable cost rises.
Fixed cost are costs that do not vary with production.
The time frame and contracts allows for distinction between fixed and variable cost in the short run.
in the short run, some costs of production cannot be changed for various reasons. Some of the reasons include, supply contract and Labour laws. Due to labour contracts, it might be difficult if not impossible to change wages paid to workers or fire workers. This makes wages fixed in the short run.
Some costs can be varied easily, for example if sales are low, shipping cost would reduce because the amount of orders are smaller.
, nd
Fixed costs include:
advertising expenditures
interest on company-issued bonds
payments for raw materials
Real estate tax
Executive salary
insurance premiums
wage payments
depreciation and obsolescence charges
rental payments on leased office machinery
Variable costs include :
fuel
shipping charges
sales taxes
All costs are variable in the long run because in the long run production decisions which appeared fixed can be changed. For example, Labour contract can end and the firm can decide to adjust or retain the contract in line with the current economic situation. The firm can decide to move to a cheaper location and reduce rental cost.
Explanation:
