Distinction between fixed costs and variable costs. Give two examples of each.

Solution

Distinction between fixed costs and variable costs:

Fixed Costs (FC)		Variable Costs (VC)
1.	FC do not increase or decrease with increase or decrease in level of output.	1.	VC change with changes in the level of output.
2.	FC are costs of fixed factors which cannot be changed during short period.	2.	VC are costs of variable factors capable of being changed during short period.
3.	FC can never be zero even when production is stopped.	3.	VC is zero (nil) when production is stopped.
4.	Production may continue even at the loss of FC during short period.	4.	A firm continues production only when VC are met.
5.	FC curve is parallel to X-axis.	5.	VC curve moves up from left to the right.
6.	FC are present only in short period.	6.	In the long run, all costs are variable costs.

Fixed costs and variable costs constitute total cost of production. These are formally called total fixed costs, total variable costs and total costs respectively.

Some More Questions From Production And Costs Chapter

What is meant by change in supply?

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Production And Costs

Distinction between fixed costs and variable costs. Give two examples of each.

Some More Questions From Production And Costs Chapter

What is meant by change in supply?

Due to improvement of technology, marginal costs of production of televisions have gone down. How will it affect the supply curve of television?

What effect does a cost saving technological progress have on supply curve?

What effect does an increase in input price have on supply curve?

What effect does an increase in excise tax have on supply curve of product?

If a farmer grows rice and wheat, how will an increase in price of wheat affect supply curve of rice?

What is meant by market period?

How will an increase in number of firms shifts the market supply curve?

What is the shape of supply curve during very short (market period)?

What is the shape of supply curve during short or long period?

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