Question

In: Economics

For each of the following, indicate whether it is a short run (S) or a long...

For each of the following, indicate whether it is a short run (S) or a long run (L) occurance:

Firms can adjust the production amount by changing the amount of variable materials within the limits of established capacity.

New firms can enter and established firms can leave the industry.

Firms can adjust capacity to achieve economies of scale or economies of scope.

Consumers can adjust their tastes and selections, leaving or entering the market and switching to or from substitute products.

Solutions

Expert Solution

(a)

Firms can adjust the production amount by changing the amount of variable materials within the limits of established capacity.

In the given scenario, firm is able to change only variable factors while some factors cannot be changed as referred to by the established capacity. it is only in short-run that some factors can be changed while others cannot be.

Thus,

It is a short run (S) occurrence.

(b)

New firms can enter and established firms can leave the industry.

It is in the long-run only that new firms can enter the industry or existing firms can leave the industry.

Thus,

It is a long run (L) occurrence.

(c)

Firms can adjust capacity to achieve economies of scale or economies of scope.

Capacity to achieve economies of scale or economies of scope implies that firm is able to change all factors of production. This is possible only in the long run.

Thus,

It is a long run (L) occurrence.

(d)

Consumers can adjust their tastes and selections, leaving or entering the market and switching to or from substitute products.

It is only in long run that consumers can adjust their demand for a particular product in absolute manner and can arrange for substitutes in easy manner or can completely abstain themselves from using the product.

Thus,

It is a long run (L) occurrence.

Rahul Sunny answered 2 years ago
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