When Fixed Costs Are High Relative to Variable Costs, Producers

question 115

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:

Two-part Tariffs

A pricing strategy that consists of a fixed fee plus a variable usage fee.

Bundling

Practice of selling two or more products as a package.

Price Discrimination

The strategy of selling the same product at different prices to different segments of consumers, based on their willingness to pay.

Combination Meal

A set meal at a restaurant that includes multiple items at a fixed total price, often providing a discount compared to purchasing items separately.