Question

In the short run, as the cost of fixed input k increases, the firm minimizes costs by reducing variable input l. This strategic adjustment aims to maintain profitability amid rising fixed costs.

A) Increase variable input l to offset fixed cost growth.

B) Maintain current levels of both fixed input k and variable input l.

C) Explore alternative fixed inputs to reduce overall costs.

D) Decrease variable input l to counterbalance rising fixed costs.

Answer 1

In the short run, firms minimize costs by decreasing variable input to offset rising fixed costs.

Step-by-step explanation:

In the short run, as the cost of fixed input k increases, the firm minimizes costs by decreasing variable input l. This strategic adjustment aims to maintain profitability amid rising fixed costs.

By reducing variable input l, the firm can save on labor costs, which is a type of variable cost. Variable costs are costs that vary with output, such as labor and raw materials. By decreasing the variable input, the firm can offset the increased fixed costs and maintain profitability.