Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Variable costs remain constant regardless of production levels, while long-run costs vary with output.
B
Variable costs fluctuate with production levels, whereas long-run costs are fixed in the short term.
C
Variable costs include only labor costs, while long-run costs encompass all types of costs.
D
Variable costs change with the level of output, while long-run costs include all costs that can vary over a longer time frame.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm is making production decisions, understanding marginal costs is important. Variable costs are costs that change with the level of production, like materials and labor needed for each additional item made. In contrast, long-run costs are the total costs a firm faces when it can adjust all its resources, including fixed costs like buildings or equipment. For example, if a toy factory decides to produce 100 more toys, the variable costs will include the extra plastic and labor, while long-run costs will consider how many machines to buy if production increases significantly in the future. Essentially, variable costs help in short-term decisions, while long-run costs guide the overall strategy of the business.
Detailed Explanation
Variable costs change as production levels change. Other options are incorrect because This answer suggests variable costs do not change, which is incorrect; This option says long-run costs are fixed, but they can change over time.
Key Concepts
variable costs
long-run costs
Topic
Understanding Marginal Costs
Difficulty
medium level question
Cognitive Level
understand
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