Chapter 7: Problem 35

It is clear that businesses operate in the short run, but do they ever operate in the long run? Discuss.

Short Answer

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In summary, businesses operate in both short run and long run time frames. While short run operations involve working with limited and fixed resources, the long run allows for flexibility and adjustment of all production factors. Companies need to make decisions that balance their short-term survival with their long-term strategic objectives, creating a continuous link between their short-run operations and long-run strategies.

Step by step solution

Introduction

The short run and the long run are two different time perspectives used in economics to understand and analyze various aspects of business operations. In short, the short run is a time period when some factors of production are fixed, while the long run is when there are no fixed factors, and all resources can be adjusted.

Short Run Operations

In the short run, businesses operate with some fixed factors. For example, equipment, facilities, and the number of workers are fixed. They can produce goods and services by using the available resources within this limited time frame. Businesses make decisions on price setting, employment, and output level in the short run. Yet, they cannot fully adjust and could face rising costs and inefficiencies.

Long Run Operations

In the long run period, all factors of production can be adjusted, businesses can enter or leave a market, alter production scales, and introduce new technologies. The long run allows businesses to take advantage of economies of scale and streamline their operations. While the long run helps businesses fully adjust, it is important to discuss if businesses do operate in that period.

Do Businesses Operate in the Long Run?

Businesses do operate in the long run when considering their long-term strategies and plans. They make decisions that impact their resource allocation, market differentiation, and competitive advantage over time. However, long-run decisions are results of accumulated short-run decisions and adjustments. Firms need to survive and adapt to the short run before they can reach the long-term objectives. It is essential to understand that businesses don't merely operate in the short run or the long run but rather continuously balance decisions in both periods.

Conclusion

Overall, businesses operate in both the short run and long run. They need to adapt, survive and make decisions in the short run while planning and adjusting to achieve their long-term goals. Although firms face limitations and fixed factors in the short run, they eventually create a continuous link between short-run operations and long-run strategies.