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CA Foundation · Business Economics · Theory of Production and Cost

Which of the following best distinguishes the short run from the long run in production theory?

In the short run at least one factor of production is fixed, so output changes only by varying the other inputs. In the long run all factors can be varied. The distinction depends on input flexibility, not on a fixed number of months or years.

  1. AIn the short run at least one factor is fixed, while in the long run all factors are variableCorrect
  2. BIn the short run all factors are fixed, while in the long run only labour is variable
  3. CThe short run covers less than one year and the long run covers more than one year by definition
  4. DIn the short run the firm earns only normal profit, while in the long run it earns supernormal profit

Explanation

Economists define the short run as the period in which at least one factor of production, usually capital, cannot be changed, so output changes only by varying other inputs. In the long run all factors can be varied. The distinction is not tied to a fixed calendar period and has nothing to do with the type of profit earned.

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