Question

26- In economies (10 points total ): A What is the difference between the long run and the short run (3 points)? B- When does the long run occur (3 points)? Why does the d short run marginal cost curve eventually increase for the ty points)? C-

need some help

Answer 1

A. In economics, short run is a period of time in which atleast one input has fixed quantity and the other inputs have variable quantity.New firms do not enter the market and existing firms do not exit the market in the short run. Firms cannot adjust costs in the short run. They can only influence prices.

In long run, all the inputs have variable quantity. New firms can enter the market and existing firms can exit the market in the long run. Firms can adjust costs in the long run.

b. Long run occurs when the firms can adjust their costs,contractual wage rates, price levels and expectations fully to the condition of the economy. There is a flexibility of production decisions in the long run. Long eun occurs when a firm is able to alter all the factors of production.

c. The short run marginal cost eventually increases because of the law of diminishing marginal returns. In short run labor is the variable factor so for additional units of output we will increase the labor. Marginal product of labor is the increase in output caused by an additional unit of labor. With the increase in labor, the marginal product of labor decreases. To increase the output we will have to increase the amount of labor. As the marginal product decreases, marginal cost will increase.