Fixed costs never change.

Question

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The statement being evaluated is: 'Fixed costs never change.'

Option 1: True. This option asserts that fixed costs are constant and do not vary. A common teaching in cost theory is that fixed costs remain the same regardless of the level of output, at least within a given short-run time period or production capacity range. However, this view is incomplete because it treats 'never change' as an absolute.

Option 2: False. Here we recognize that fixed costs are defined as costs that do not change with output within a chosen relevant range, but they can change when the relevant range itself changes or when there are long-run decisions. For instance, in the short run a company might pay a fixed rent for a facility, but if the lease is renewed or restructured, or if the plant is expanded or closed, those fixed costs can rise or fall. Likewise, long-run adjustments (such as changing facilities, renegotiating contracts, or altering capacity) alter fixed costs, even though they may appear constant at a particular production level in the short run.

Option 3: True (reiterated) would imply there is no scenario under which fixed costs alter, which conflicts with the standard distinction between short-run and long-run cost behavior and with real-world decisions that can modify fixed commitments.

Option 4: False (reiterated) would emphasize that fixed costs are inherently linked to the production quantity in all circumstances, which ignores the concept that the relevant time horizon and capacity decisions influence whether a cost is fixed or variable.

In summary, the idea that fixed costs never change ignores the practical realities of time horizons and capacity decisions that can cause fixed costs to be adjusted, renewed, or replaced. The reasoning hinges on understanding fixed costs as constant with respect to output only within a specific range and time period, not as an absolute permanence across all circumstances.

GBUS4330W01 25 Fall GBUS 4330 Final Exam - Requires Respondus LockDown Browser

Fixed costs never change.

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GBUS*4330*W01 25 Fall GBUS 4330 Final Exam - Requires Respondus LockDown Browser

Fixed costs never change.

View Explanation

Log in for full answers

Similar Questions

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GBUS4330W01 25 Fall GBUS 4330 Final Exam - Requires Respondus LockDown Browser