Fixed or Variable?
Question: Indicate whether the inputs below are Variable or Fixed in the short run.
1. Meat (input) in hamburgers (output)
2. Fire Insurance (input) in dry cleaning (output)
3. Tires (input) in automobiles (output)
4. Property Tax (input) in textile production (output)
5. Gasoline (input) in trucking services (output)
6. Depreciation (input) in aircraft production (output)
a cost is fixed if it doesn't change when you increase your output.
These are typically things like rental costs on factory/equipment; cost of buying licenses from the government, etc.
So, to do a couple of examples
1. Meat to produce hamburgers.
This is a variable cost. If i increase the amount of hamburgers i produce i will have to buy more meat
4. property Tax
This is a fixed cost. If i increase the amount of textiles i produce, i will still only need 1 factory, so i will still pay the same amount of property tax.
(for very large changes in output, i would need another factory, but lets ignore that here!)
You can argue this both ways. Depreciation is the drop in the value of your aircraft over time.
This happens because they get older: (fixed cost - they get older at the same rate regardless of how much you use them)
And because they have been used: (variable cost - the more you use them the more they will wear out)
If you are studying introductory level economics, it would normally be called a fixed cost.
Would you please help me out with the rest of them?
Have a go yourself and post whatever reasoning you can come up with if you get stuck.
The question you need to ask each time is:
If i increase production a little bit, will i need to buy more of this input?
answer yes = Variable cost
answer No = Fixed cost
Fire insurance - fixed because it's a contract?
Gasoline and tires variable because depends on car ?
yes, Insurance is fixed
Gasoline is variable
Tyres are also variable. You wont be able to produce 1 more car without buying 4 new tyres to put on it