In the short run, which statement is true about costs?

• A. All costs are variable.
• B. There are some fixed costs (for example, a lease).
• C. There are no fixed costs.
• D. All costs are sunk.

Answer: (B)

In the short run, some inputs are fixed, so costs include fixed costs that do not vary with output. A lease on premises is a typical example: you pay it whether you produce a lot or a little. Because portion of costs stays the same regardless of production, fixed costs exist in the short run. The total cost equals fixed costs plus variable costs, with variable costs changing as production changes. Sunk costs are costs that cannot be recovered, and while some costs may be sunk, that doesn’t remove fixed costs or mean all costs are sunk. The statements that all costs are variable, that there are no fixed costs, or that all costs are sunk are not correct.