Microeconomics Fixed Costs and Variable Costs

Question: Discuss about theMicroeconomicsfor Fixed Costs and Variable Costs. Answer: Introduction A firm that operates in the short run has to incur two form of costs. The costs can be stated as fixed costs and variable costs. The fixed costs are costs that are incurred at the start of the production process, which does not change with the change in output (Baumol and Blinder 2015). Along with these two costs, firms incur marginal costs in their production process. Marginal costs are changes in the total cost with respect to change in output of a company. In this context, it could be stated that there are two types of firms, one with high fixed costs in the short run and the other with high marginal costs. Airlines industry can be associated with firm that have high fixed costs in the short run. This industry needs expensive piece of equipments that must be incurred at the start of the business. These equipments are one of a kind that needs strong financial aids to be apprehend in the form of fixed costs. It does not matter whether the business provides profits or loss. Oil extracting industry is the ones with high marginal costs. This industry incurs additional extra costs on an extra barrel of crude oil being extracted (Rader 2014). This thereby raises the total cost of the industry, leading to higher marginal costs. The following analysis shows how different industry faces different forms of costs structures. One industry incurs high costs at the start of the production process, whereas, the other incurs the cost in an additional manner as the production process proceeds. References Baumol, W.J. and Blinder, A.S., 2015.Microeconomics: Principles and policy. Cengage Learning. Rader, T., 2014.Theory of microeconomics. Academic Press.