Cost Of Production and Concept of Revenue — Economics STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsCost Of Production and Concept of Revenue2 Marks
Question
‘All costs are variable in the long run.’ Explain.
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Answer
Variable cost increases if cost of production increases and decreases if the cost of production decreases and also becomes zero if production is zero.
This cost has direct (positive) relation with quantity of production.
Price of raw material, energy consumption, transportation expenditure, labour wages, tax on product, sales tax, etc. are variable costs which are directly dependant on the quantity of production.
All these costs affect the production only in short run. In the long run , changes can occur in all of these.
For example, there might occur a huge change in price of raw material, mode of transportation may change, taxes may be added or abolished. Similarly, fixed costs might also vary largely. The producer may buy new premises, change his machinery, increase labour, etc.
Hence, irrespective if the cost is fixed or variable, it becomes variable in the long run.
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