True or False: "Suppose the price of a firm's fixed input rises

Accounting Dec 08, 2020

True or False:

"Suppose the price of a firm's fixed input rises. If it decides to maintain its production level, its average costs are lower in the long-run than they are in the short-run."

Explain.

Expert Solution

The statement is false.

Explanation:

If the cost of fixed input will increase, then the average cost over a period of time is bound to rise. In the longer run, the average costs for the firm will be higher than they will be in the short run. But the firm can take various steps in order to reduce the fixed costs in the long run but that is uncertain.

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