Why is the distinction between fixed and variable cost important?

Question

Please provide the best answer for the statement.

Answer 1

The importance in distinguishing between fixed and variable costs will become more apparent in later chapters when the firm’s decision about price and output determination is examined. For now, the primary importance has to do with the distinction between the long run and the short run. Once fixed costs are incurred, a short-run period has been determined by the length of time that those costs are fixed, i.e., cannot be varied. The firm has no immediate control over these costs. Other costs that vary with the level of output then are variable costs. Later we will learn that they are important in determining the profit-maximizing or loss-minimizing level of output given the plant size and other fixed costs.