Question

Are there fixed costs in the long-run? Explain

briefly.

Short answer

There are no fixed costs in the long run. All the costs, in the long run, are variable and change with the level of output.

Step-by-step solution

Step 1. Fixed costs

Fixed costs are the costs that do not change with the level of production, that is, independent of output. Firms have to incur a given level of fixed costs for any level of production, even at zero level of production.

Step 2. Fixed costs in the long run

Fixed costs in any production process are considered only in the short run. In the short run, firms have to incur a given level of fixed costs for producing output. The fixed costs of production are constant over a period of time but may change over time during the production process throughout the short run. But, as firms transit from short-run to long-run production processes, all the fixed elements in the short run become variable in the long run. In the long run, firms operate at a very large scale and economies of scale operate in production. All the fixed costs incurred by firms in the short run become variable in the long run because there are no fixed factors of production in the long run. All factors are variable and so are all costs in the long run.