Chapter 8: Problem 2

The short run is that time in which the supply of most of the factors of production is elastic, though the production technology is assumed to remain unchanged.

Short Answer

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Short Answer: The short run is a period in economics where at least one factor of production is fixed, while other factors may be varied. During this time, firms must react to market fluctuations and make production decisions based on the elasticity of most factors of production, fixed factors, and constant technology. An example is a bakery adjusting its labor and raw materials to meet increased demand while being unable to expand its production facility or invest in new machinery during this period.

Step by step solution

Introduce the concept of short run

The short run, in economics, refers to a period during which at least one factor of production is fixed while other factors of production may be varied. The concept is crucial to understanding the behavior of firms and their production decisions in the short term.

Explain the elasticity of factors of production

In the short run, most factors of production exhibit supply elasticity. Elasticity, in this context, refers to the degree to which the quantity supplied of a production factor varies in response to a change in its price. Factors with elastic supply, such as labor and raw materials, can be easily increased or decreased by the firm in response to changes in demand or cost.

Discuss the assumption of unchanged production technology

In the short run, it is assumed that the production technology remains constant. This means that during this period, firms are not capable of adopting new technologies or significantly changing their production methods. As a result, any adjustments to production must be made using the existing technology and resources that are available to the firm.

Describe the importance of understanding the short run

Studying the short run is important because it helps us understand how firms react to fluctuations in the market and make decisions about production levels. During this time, firms must balance the costs and benefits of varying their output, while also considering the constraints imposed by fixed factors of production and constant technology.

Provide an example of a short run decision

For instance, consider a bakery that experiences an unexpected increase in demand for its pastries. In the short run, the bakery can respond by hiring more workers, purchasing additional raw materials, and increasing the production hours to meet the rising demand. However, it is not able to expand its production facility or invest in new machinery during this period, as those adjustments would require a longer time frame to implement. In conclusion, the short run is a critical period in understanding a firm's decision-making process as it navigates the elasticity of most factors of production while dealing with constraints from fixed factors and constant technology.