Reference no: EM132312505

The authors initially define fixed costs in Chapter 3 and then refine the concept in Chapter 7 by noting that the definition of fixed costs depends on our time horizon. Some costs that are fixed in a short time horizon (e.g., over the next year) may become variable costs over a longer period of time (e.g., five years or more). For example, your firm may have a three year employment contract with the general sales manager. Until the current contract expires, the manager's salary may be a fixed cost for the firm, but this expense becomes variable beyond the term of the current contract. This time-dependent definition of fixed costs also applies to many other expenses, including facilities, equipment, and technology.

Please provide an example from your industry of a short-run fixed cost that becomes variable in the long run. How long does it take for this short-run fixed cost to become variable? Can you think of a cost for the firm that is always fixed, even into the indefinite future?