Except for the output level for which short-run fixed capital is long run cost-minimizing, short-run average expenses incurred by the firm are higher than long run average costs.

Question

Quizplus · Accepted Answer

In the short run, a firm has fixed costs that cannot be adjusted such as rent and salaries, leading to higher short-run average expenses. In the long run, a firm can adjust all costs, including fixed costs, to minimize average costs. Therefore, short-run fixed capital may be cost-minimizing, but short-run average expenses are generally higher than long-run average costs.

Except for the Output Level for Which Short-Run Fixed Capital