Which of the following is CORRECT?

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BlackTom AI · Accepted Answer

Question restatement: Which of the following is CORRECT?

Option a: 'There are no fixed costs in the short run.' This statement is false because in the short run, at least some costs are fixed (e.g., costs associated with capital like rent for a factory), while only variable costs can change with output. The short run is defined by the presence of fixed inputs, so lack of fixed costs is incorrect.

Option b: 'Rent is an example of a variable cost in the short run.' This is incorrect because rent is typically a fixed cost in the short run; it does not vary with the level of production in the short term. Unless there is a special arrangement, rent remains constant regardless of output, which is the hallmark of a fixed cost in the short run.

Option c: 'Some costs are fixed in the long run.' This statement is misstated in common economic terminology. By definition, in the long run all inputs are variable and there are no fixed costs. Some costs are fixed only in the short run, not in the long run. Therefore, this option misleads about the long-run cost structure.

Option d: 'There are variable costs and fixed costs in the short run.' This is the correct characterization of short-run cost structure: variable costs change with output (like materials, direct labor tied to production volume), while fixed costs remain unchanged in the short run (like rent, depreciation of capital). This option aligns with standard microeconomics definitions of short-run cost behavior.

Synthesis and common pitfalls: The key distinction is between short run and long run. In the short run, some inputs are fixed, so costs can be a mix of fixed and variable. In the long run, all inputs are flexible and there are no fixed costs. Options a, b, and c each contain a commonly encountered misunderstanding: assuming no fixed costs in the short run, labeling rent as variable, or claiming fixed costs persist in the long run. Option d correctly captures the standard short-run cost structure by acknowledging both fixed and variable costs can exist simultaneously in that period.

Which of the following is CORRECT?

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