Final answer:
The statement is false; merchandising firms primarily have downstream costs while manufacturing firms incur both upstream production costs and downstream costs. Each type of firm has a unique cost structure that includes fixed and variable costs.
Step-by-step explanation:
The statement 'All costs for a merchandising firm are downstream costs for a manufacturing firm' is false. In a merchandising firm, most costs are associated with purchasing and selling finished goods. These costs are often referred to as downstream costs, as they relate to activities that occur after the production phase, such as distribution and marketing. Conversely, a manufacturing firm incurs upstream costs related to the production of goods, such as raw materials, labor, and overhead, which are then followed by downstream costs similar to those in merchandising firms.
In the short run, firms' total costs are divided into fixed costs and variable costs. Fixed costs are sunk costs and do not affect future economic decisions. Variable costs, which a firm incurs during production, often exhibit diminishing marginal returns, leading to a rise in marginal cost with higher levels of output. This distinction is crucial as it influences the firm's production and pricing strategies.