What is the difference between fixed costs and variable costs? Consider you own a pizzeria

2.

Fixed costs are the costs that are fixed with a manufacturing process. For example, the rent of a place, machineries, and ovens fall under this category.

Variable costs are those costs which adds up to the costs of producing per unit of a product. For example, Flour, cheese and bacon are variable costs depending on the order made by the customer.

Total cost cuve is U shaped as the total cost keeps on decreasing and reaches the minimum (economies of scale) i.e. the optimal production and from there on every additonal unit will push the total cost up.

Variable cost is almost U shaped with upward sloping due to the principle of variable proportions.

3.

According to the shutdown principles, in the short run a firm should continue to operate if price is equal to or above the average variable costs. sfsdf

i)

Since 24>16, the firm can continue to operate under these circumstances

ii)

In the long run, the price needs to be greater than the average total cost. As 24 is less than ATC in this case, hence the firm should shutdown.

iii)

In the long run, the rorice needs to be greater than the average total cost. As 24 is less than ATC (30) in this case, hence the firm should shutdown.

In the short run, the price needs to be greater than the average variable cost. As 24 is less than AVC (20) in this case, hence the firm should continue operations in the short run.

Hope this helps. Cheers!