Which of the following statements best represents a difference between short-run

Question

Which of the following statements best represents a difference between short-run and long-run cost?

Less than one year is considered the short run; more than one year the long run.

There are no fixed costs in the long run.

In the short-run labor must always be considered the variable input and capital the fixed input.

All of these are true.

Less than one year is considered the short run; more than one year the long run.

There are no fixed costs in the long run.

In the short-run labor must always be considered the variable input and capital the fixed input.

All of these are true.

Explanation / Answer

All of these are true in respect of difference between short run and long run costs.

The main difference between long run and short run costs is that there are no fixed factors in the long run; there are both fixed and variable factors in the short run . In the long run the general price level, contractual wages, and expectations adjust fully to the state of the economy. In the short run these variables do not always adjust due to the condensed time period. In order to be successful a firm must set realistic long run cost expectations. How the short run costs are handled determines whether the firm will meet its future production and financial goals.

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