Question

Imagine that you own an ice cream parlor:

• What is a variable factor of your ice cream parlor that must be modified or changed to increase the number of ice cream cones in the short run?
• What aspects of your business cannot be changed in the short run?
• Explain why only certain aspects of your business can change output in the short run.
• Does producing more output than another business in the market necessarily mean having greater economic profit (total revenue minus total cost)? Why or why not?

Answer 1

Answer

Atleast one of the factor is fixed in the short run so that the outputn or the production can be increased by including more variable factors like

Employing more labors/workers .

purchasing more raw materials .

By fixing the cost does not here means that the output would change .If even they shut down they have to pay like rents , leasing cost , capital investment purchaisng cost etc .Fixed cost means like overhead cost of a certain business .The total cost is equal to fixed cost + variable cost

A must variable factor which can be changed in order to increase the output of the cones of ice cream in my parlor will be the reduction of cones .Now if in my store , there will be a reduced 20% in the price comparing to toher products which will be a enough incentive for creating a demand for the more ice cream cone in the short run thereby generating more revenues .

In the short run , both total fixed and variable cost exist .Efficient long run can sustain when there will be a combination of the ice cream parlor output produces the desired quanity of goods at the least possible cost .Also with the output the variable cost changes .So the variable cost decide the increase or decrease in the short run cost .If the parlor manages the short run cost well over the period of time , they it will suceed in reaching long run cost and objective .

HAVE A GOOD DAY !