ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the level of stock held by firms
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the level of technology available
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market price of goods
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the output of individual firms in an industry
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Detailed explanation-1: -In the short-run, fixed costs cannot be changed. All the changes in total cost happen due to changes in the variable cost. Q. In the short run, the employment of factors can be changed.
Detailed explanation-2: -In the short-run we get diminishing returns to a factor (because the firm can only change the variable factor). In theory, in the short-run, the average costs of a firm should decrease as the output of the firm increases. Fixed costs are constant, so become spread over more and more product.
Detailed explanation-3: -Therefore in the short run, we can get diminishing marginal returns, and marginal costs may start to increase quickly. Also, in the short run, we can see prices and wages out of equilibrium, e.g. a sudden rise in demand, may lead to higher prices, but firms don’t have the capacity to respond and increase supply.
Detailed explanation-4: -Short-run production is the combination of the quantities of the goods/commodities that can be produced in an economy with the given technology and resources. Therefore, in the short run, technology is taken as constant.