Is ? or ? fixed in the short-run?

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Expert Solution

In economics,short run is defined as the period of time during which atleast one factor of production is fixed while others are variable.While in the long run ,all factors of production are variable.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.

Let K and L represent capital and labour and our production function is Y=F(K,L).

Suppose K is fixed at K" in the short run while L can be varied. Then our production function becomes Y=F(K",L) in the short run.

Note that although K cant be varied in the short run but firm can choose L according to its own wish and therefore it can increase or decrease production by changing the usage of L.Therefore Y is not fixed in the short run.

Since firm can change its output level by changing usage of variable input, it can increase or decrease its output supply and thereby prices can also be varied in the short run.

Therefore,output and prices don't have full freedom but still they can be varied.

Rahul Sunny answered 1 year ago

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