Fixed operating costs can change over time.

Question

BlackTom AI · Accepted Answer

Consider the statement: 'Fixed operating costs can change over time.'

First, recall what fixed costs are: they are costs that do not vary directly with the level of production or sales within a certain relevant time frame. They are expected to remain constant for a given period or within a specific operating range, regardless of how much output is produced.

Now, examine the nuance of time. Over short periods within a defined relevant range, fixed costs tend to stay constant because capacity and commitments (such as rent, salaries of essential staff, depreciation on production machinery, and certain insurance costs) do not fluctuate with output.

However, as time passes and decisions are made about capacity, structure, or financing, fixed costs can and do change. Examples include: renegotiation or expiration of leases leading to higher or lower rent; changes in salaries due to contractions or expansions of staffing; alterations in depreciation if asset bases are revalued or replaced; changes in insurance premiums; and long-term strategic shifts that alter fixed commitments.

Therefore, the statement is describing a true characteristic in the broader sense: fixed operating costs can change over time, particularly due to long-run decisions or changes in the operating environment. In the short run, they may remain stable, but time introduces possibilities for adjustment.

If someone argued this were false, they would be conflating 'fixed' with 'never change' and would be ignoring the distinction between the short run (where costs are fixed within a relevant range) and the long run (where all costs are potentially variable and can change with decisions and scale). This interpretation would overlook legitimate changes in fixed commitments over time.

In summary, the claim is true when considering that fixed costs can be adjusted or renegotiated over time due to strategic decisions, long-run planning, or changes in capacity and external terms, even though they are not tied to output in the immediate short run.

GBUS4330W01 25 Fall GBUS 4330 Quiz 2 - Requires Respondus LockDown Browser

Fixed operating costs can change over time.

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