What is the difference between the short run and the long run?
A. In the short run, at least one of a firm’s inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
B. In the short run, a firm can vary all inputs but technology is fixed, while in the long run, a firm can adopt new technology but all inputs are fixed.
C. In the short run, all of a firm’s inputs are fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
D. In the short run, all of a firm’s inputs are fixed, while in the long run, a firm is able to vary at least one input and adopt new technology.
E. In the short run, a firm can vary all inputs but technology is fixed, while in the long run, a firm can vary all inputs and adopt new technology.
The correct answer and explanation is :
Correct Answer:
A. In the short run, at least one of a firm’s inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
Explanation:
In economics, the distinction between the short run and the long run is crucial in understanding how firms operate and respond to changes in market conditions.
Short Run:
The short run is a period in which at least one factor of production (input) is fixed. Typically, capital (such as factories, machinery, or land) is considered fixed in the short run because firms cannot immediately change their production facilities. However, other inputs like labor and raw materials can be adjusted to respond to changes in demand. Due to these constraints, firms in the short run can only make limited adjustments, such as increasing labor hours or purchasing more raw materials, but they cannot expand or build new factories instantly.
Long Run:
The long run, in contrast, is a period where all inputs are variable. Firms can adjust all factors of production, including capital, labor, and technology. They can expand their factories, enter new markets, or even switch to more efficient production technologies. In the long run, firms can achieve economies of scale, leading to lower production costs per unit. Additionally, firms can adopt new technology to improve productivity and efficiency, which is a key feature of the long-run decision-making process.
By defining the short run as a period with at least one fixed input and the long run as a period where all inputs are variable and technology can be adopted, we correctly distinguish between the two concepts. This aligns with answer choice A, making it the correct choice.