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the distinction between fixed costs and variable costs

Why can the distinction between fixed costs and variable costs be made in the short run? Distinction between fixed costs and variable costs can be made in the short run because a change in degree can be made. Also, a firm's plant capacity is fixed in short run and can use its existing plant capacity more or les intensively in the short run. Classify the following as fixed or variable costs: advertising expenditures, fuel, interest on company-issued bonds, shipping charges, payments for raw materials, real estate taxes, executive salaries, insurance premiums, wage payments, depreciation and obsolescence charges, sales taxes, and rental payments on leased office machinery. "There are no fixed costs in the long run; all costs are variable." Explain.

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(i) Advertising expenditures = Variable Cost
(ii) Fuel = Variable Cost
(iii) Interest on company-issued bonds = Variable Cost
(iv) Shipping charges = Variable Cost
(v) Payments for raw materials= Variable Cost
(vi) Real estate taxes = Fixed ...

Solution Summary

This job marks the distinction between fixed costs and variable costs.

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