Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?
What will be an ideal response?
In the short run, the amount of at least one input employed by the firm, usually capital, is fixed while other inputs are allowed to vary. This reflects the fact that it is usually difficult or impossible to change the amount of capital employed by the firm in a shorter amount of time. In contrast, the amount of inputs such as labor that are employed can be changed almost instantaneously. In the long run, all of the inputs employed by the firm, including capital, can be varied. This distinction is important because it defines the set of possible responses a firm's manager can employ in response to a change in market conditions, such as a sudden decrease in demand. In the short run, the manager is limited to adjusting the amounts of variable inputs employed, while in the long run all of the inputs employed by the firm can be adjusted.
You might also like to view...
What is "shared growth," and what kind of institutions are required for its success?
What will be an ideal response?
A survey of 200,000 people finds 76,300 "employed," 6,640 "unemployed," and the remaining 117,060 "not in the labor force." What is the unemployment rate derived from these numbers?
A) 8.7 percent B) 3.3 percent C) 8.0 percent D) 5.7 percent
Price discrimination is often used by businesses. Explain the conditions under which price discrimination is practiced
What will be an ideal response?
Refer to Figure 23.1 for a perfectly competitive firm. This firm should shut down in the short run if the market price is below
A. $20. B. $10. C. $5. D. $15.