Question

Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistic a. in the short run but not in the long run. b. in the long run but not in the short run. c. both in the short run and in the long run. d. neither in the short run nor in the long run.

Answer 1

Answer: a. in the short run but not in the long run

Explanation:

The Short Run is usually considered in Economics/ Business as a point in time where at least ONE factor of production is FIXED. This factor is usually the Factory because it is hard to change the capacity of a Factory in the Short run. For instance a wing might need to be constructed. Labour on the other hand is considered variable in the Short run though because more people can be hired and the people already hired can put in more overtime.

The Long Run is classified as a point where EVERY factor of production is Variable. There is enough time to even change the capacity of a Factory. So here even Factory is Variable.