Question

In the short run, how will an increase in fixed costs affect the output of a typical firm in a competitive market?

A An increase in output
B A decrease in output
C No change in output
D Cannot tell

Answer 1

In the short run, an increase in fixed costs will have no direct effect on the output of a typical firm in a competitive market. Option C is correct.

Step-by-step explanation:

In the short run, an increase in fixed costs will have no direct effect on the output of a typical firm in a competitive market.

Fixed costs are costs that do not change with the level of production, such as rent and salaries. In the short run, a firm's production is limited by its available resources and technology, so increasing fixed costs will not change the firm's ability to produce goods or services.

However, an increase in fixed costs can still affect the firm's profitability. If fixed costs increase without a corresponding increase in revenue, the firm's profits will decrease. This can make it harder for the firm to cover its total costs and may lead to losses in the long run.