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Which of the following can a firm do in the long run but not in the short run:

1. Increase the size of its physical plant.

2. Reduce its rate of output by laying off workers.

3. Increase its variable costs.

4. Increases its use of raw material 

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Sonal Bahl
Sonal BahlLv10
6 Dec 2020

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Related questions

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

According to the definition of the short-run in Investopedia, the short-run, in economics, expresses the concept that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short-run does not refer to a specific duration of time but rather is unique to the firm, industry, or economic variable being studied. A key principle guiding the concept of short-run and long-run is that in the short-run, firms face both variable and fixed costs, which means that output, wages and prices do not have full freedom to reach a new equilibrium. Most businesses make decisions not only about how many workers to employ at any given point in time (i.e. the amount of labor) but also about what scale of an operation (i.e. size of factory, office, etc.) to put together and what production processes to use. In contrast, economists often define the short-run as the time horizon over which the scale of operation is fixed and the only available business decision is the number of workers to employ. Technically, the short-run could also represent a situation where the amount of labor is fixed and the amount of capital is variable, but this is fairly uncommon. The logic is that even taking various labor laws as given, it's usually easier to hire and fire workers than it is to significantly change a major production process or move to a new size of factory or office. In the short-run, one factor of production is fixed, e.g. capital. This means that if a firm wants to increase output, it could employ more workers, but not increase capital in the short-run (it takes time to expand.) Therefore in the short-run, we can get diminishing marginal returns, and marginal costs may start to increase quickly. Also, in the short-run, we can see prices and wages out of equilibrium, e.g. sudden rise in demand, may lead to higher prices, but firms don't have the capacity to respond and increase supply.


Tejvan Pettinger. (2015). Short-run, long-run, very long-run. Glossary Terms. Economics help blog. NY: Helping to Simplify Economic.
Retrieved from: http://www.economicshelp.org/blog/glossary/short-run-long-run-very-long-run/
Short-Run. Short-Run Definition | Investopedia
Retrieved from http://www.investopedia.com/terms/s/shortrun.asp#ixzz4KO1YXsri

I need a peer reply for this, please.

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

11)

A constant-cost, perfectly competitive industry experiences a permanent increase in demand. In adjusting to this change, what will happen to the price of the product?

 

It will increase in the short-run and then decrease in the long-run, but end up above its original level in the long-run.
 

It will increase in the short-run and then increase further in the long-run.
 

It will increase in the short-run and then decrease back to its original level in the long-run.
 

It will increase in the short-run and then decrease below its original level in the long-run.
 

It will decrease in the short-run but return to its original level in the long-run.

12)

Assume that a perfectly competitive firm owns or rents a higher-quality resource that results in lower average total costs and higher economic profits in the short run. What will happen in the long-run?

 

The price of the higher-quality resource will be bid upward resulting in economic rents and equalizing costs across firms.
 

New firms will enter and compete with any excess profits away.
 

None of the other answers is correct.
 

The government will tax away any excess profits.
 

The firm with the higher-quality resource will earn positive economic profits in the long run.

13)

Which of the following are characteristics of long-run equilibrium?

 

No firm has an incentive to change its level of output.
 

No firm has an incentive to change its plant size.
 

Economic profit is zero
 

All of the above
 

None of the above

14)

Which of the following statements is consistent with the textbook’s analysis of perfect competition?

 

Although individual perfectly competitive firms won’t pay to advertise, the industry as a whole may well advertise.
 

Higher costs for one firm in the industry will result in that firm charging a higher price than the other firms in the industry.
 

If all the firms in an industry charge an identical price for their products, this is clear evidence of collusive behavior.
 

All of the above
 

None of the above

15)

The assumptions that define the market structure known as monopoly include which of the following?

 

High barriers to entry.
 

There is one seller.
 

There are no close substitutes available.
 

All of the above
 

None of the above

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