Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
In the short-run, firms can vary all inputs to maximize profit, while in the long-run, they can only vary variable inputs.
B
In the short-run, firms may face fixed costs and cannot adjust all inputs, whereas in the long-run, they can adjust all inputs including fixed costs.
C
In the long-run, firms are always more profitable than in the short-run due to economies of scale.
D
Firms do not make any adjustments in input usage over the short-run or long-run.
Understanding the Answer
Let's break down why this is correct
Answer
In the short run, firms focus on maximizing profits by adjusting their production levels based on current market demand and costs. They can quickly change how much they produce, but they cannot change their fixed resources, like buildings or machinery. For example, if a bakery sees that more customers want cupcakes, it can bake more cupcakes without needing to buy a new oven right away. In the long run, however, firms can change all their resources, including investing in new equipment or even expanding their business. This means that they consider not just immediate profits but also how to sustain and grow their business over time by making more strategic decisions.
Detailed Explanation
In the short run, firms have fixed costs, like rent, that they can't change. Other options are incorrect because This answer confuses fixed and variable inputs; This answer suggests firms are always more profitable in the long run, which isn't true.
Key Concepts
short-run vs. long-run decisions
firm behavior.
Topic
Profit Maximization for Firms
Difficulty
medium level question
Cognitive Level
understand
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