Cindy's Nails operates in the perfectly competitive pedicure industry. The city is considering requiring nail salons to be certified by a health inspector. The certification will cost $1,000 annually and is thus a fixed cost. The certification will affect Cindy's decision to operate in the long run but will not affect the number of pedicures she chooses to perform if she operates in the short run.

Question

Quizplus · Accepted Answer

In the short run, fixed costs do not affect the quantity of output produced because they do not change with the level of output. However, in the long run, fixed costs can influence the decision to continue operating if they affect overall profitability.

Cindy's Nails Operates in the Perfectly Competitive Pedicure Industry