In the short run any production process will use both fixed and variable inputs. Thus, in the short run, we must distinguish between fixed costs and variable costs. In the long run since, by definition, everything is variable so all costs are variable. Fixed costs only exist in the short run..
Variable Costs are costs that change when output changes in the short run.
Fixed Costs are costs that do not change when output changes in the short run.
If you're trying to figure out which things are fixed costs and which are variable just ask yourself which would the business in question have to buy/hire more of in the short run if it decided to increase its output?
Examples of items that are typically variable costs include: wages, costs of raw materials, utility costs, transportation
costs. Examples of items that are typically fixed costs include: forgone salary of owner(s), rent, property taxes, most
kinds of insurance.
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