Question

Your company incurs a cost for fire insurance, which in the short run, is fixed. What happens to the cost in the long run? In the long run the cost of fire insurance...

Answer 1

Answer:

The correct answer is it becomes variable cost.

Explanation:

In the short run there are fixed costs and variable costs which sum up the total costs incurred. This is because in short run not all factors are variable, some factors are fixed as well. So, expenses on fixed factors come under fixed and those on variable factors come under variable costs.

In the long run though, all the factors are variable. All factors can be changed. So there are no fixed costs in the long run run. All the costs incurred on all factors become variable costs.