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

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Quizplus · Accepted Answer

When fixed costs are high relative to variable costs, it means that most of the cost of producing the product is in the fixed costs, rather than the variable costs. Therefore, it makes sense for producers to continue producing in the short run, even if they incur some losses, because shutting down would mean losing all of their fixed costs. Only when the product price is lower than their average variable costs would it make sense to shut down in the short run.

When Fixed Costs Are High Relative to Variable Costs, Producers