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Chapter 7: Long-Run (page 237)

What is the long-run in the microeconomic theory?

Short Answer

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The long-run is the period where no factors of production are fixed and where all factors of production can be changed.

Step by step solution

01

Difference between Long-run and short-run

Long-run production in the microeconomic theory is the period where the scale of all factors of production is variable and can be changed. In the long run, the company can benefit from economies of scale as the scale and capacity of production can change.

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Most popular questions from this chapter

What are some examples of the factors of production?

What is the short run in the microeconomic theory?

A chair manufacturer hires its assembly-line labor for \(30 an hour and calculates that the rental cost of its machinery is \)15 per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 3 hours of labor for each hour of machine time, is it minimizing its costs of production? If so, why? If not, how can it improve the situation? Graphically illustrate the isoquant and the two isocost lines for the current combination of labor and capital and for the optimal combination of labor and capital.

Suppose that a paving company produces paved parking spaces (q) using a fixed quantity of land (T) and variable quantities of cement (C) and labor (L). The firm is currently paving 1000 parking spaces. The firm’s cost of cement is \(4,000 per acre covered, and its cost of labor is \)12/hour. For the quantities of C and L that the firm has chosen, MPC = 50 and MPL = 4.

  1. Is this firm minimizing its cost of producing parking spaces? How do you know?

  2. If the firm is not cost-minimizing, how must it alter its choices of C and L in order to decrease cost?

Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it produces any output.

  1. How does this tax affect the firm’s fixed, marginal, and average costs?

  2. Now suppose the firm is charged a tax that is proportional to the number of items it produces. Again, how does this tax affect the firm’s fixed, marginal, and average costs?
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