Which of the following types of firms tend to have low fixed costs?

• A. Small retail shops
• B. Automobile manufacturing plants
• C. Airline companies
• D. Electric power utilities

Answer: (A)

Verified step by step guidance

1. Understand the concept of fixed costs: Fixed costs are expenses that do not change with the level of output produced. These costs must be paid regardless of how much a firm produces, such as rent, salaries, or equipment costs.
2. Analyze the nature of each type of firm listed: Automobile manufacturing plants, airline companies, and electric power utilities typically require large investments in infrastructure, machinery, and technology, leading to high fixed costs.
3. Consider small retail shops: These businesses usually operate in smaller spaces, with less expensive equipment and lower overhead costs, resulting in relatively low fixed costs compared to large industrial firms.
4. Compare the scale and capital intensity: Firms with large-scale operations and capital-intensive production processes tend to have higher fixed costs, while smaller, less capital-intensive firms have lower fixed costs.
5. Conclude that small retail shops tend to have low fixed costs because their operational setup requires less upfront investment and fixed expenses compared to the other types of firms listed.