When Fixed Costs Are High Relative to Variable Costs, Producers

question 214

Multiple Choice

When fixed costs are high relative to variable costs, producers will tend to

• A) continue producing in the short run even if they incur some losses.
• B) quickly shut down in the short run whenever they see losses.
• C) only produce in the short run as long as the product price is lower than their average variable costs.
• D) produce in the short run even if the product price is lower than their average fixed costs.

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Definitions:

Disinflation

Disinflation is the process of slowing down the rate of inflation, indicating a reduction in the speed at which the general level of prices for goods and services is rising.

Wage-Price Spiral

A macroeconomic concept describing a situation where rising wages lead to increased prices, which in turn lead to demands for higher wages, thus perpetuating inflation.

Consumer Price Index

A calculation that evaluates the weighted mean prices of a group of consumer items and services, including healthcare, food, and transport, for assessing inflation.

Percent Per Year

A rate or proportion of a quantity expressed as a fraction of 100 per annum.