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CA Foundation · Business Economics · Theory of Production and Cost

Which statement correctly distinguishes the short run from the long run in production theory?

In the short run at least one factor of production is fixed, while in the long run all factors can be varied. The difference depends on input flexibility, not on a specific calendar duration.

  1. AIn the short run all factors are variable, in the long run all are fixed
  2. BIn the short run at least one factor is fixed, in the long run all factors are variableCorrect
  3. CThe short run is a period shorter than one year and the long run is longer than one year
  4. DThe short run has no fixed costs while the long run has fixed costs

Explanation

The distinction rests on factor flexibility, not calendar time. In the short run at least one factor, such as plant, is fixed; in the long run all can be varied. Option 3 is wrong because the periods are not defined by a fixed number of months or years.

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