Answer to Question #143412 in Microeconomics for Arti

Question

Why can the distinction between fixed and variable costs be made in the short run? I answered
a. In the short run, the Law of Diminishing Returns applies which states that with the increase in any variable cost e.g. labour or raw materials, and with all fixed costs such as rent, lease payments etc. remaining constant, the output per unit of the variable factor/s will eventually diminish. Thus, clearly only the output per variable factor/s is being measured and therefore, the need to distinguish between the fixed and variable costs.
Is this answer correct?

Answer 1

No, your answer is definitely incorrect. Here is the correct answer.

The distinction between variable and fixed costs can be archived in the short-run since in the short -run, two kinds of factors; fixed, and variable factors prevail. An individual can effortlessly distinguish the type of cost in the short-run by having a keen look at the factor on which it has been incurred. Therefore, when a cost is incurred on a fixed factor, it is known as a fixed cost, whereas when a cost is incurred on a variable factor, it is referred to as variable cost.