Question

1(a)What is the difference between the long-run and the short-run? Give specific examples from two different industries.

(b)How do some firms minimize long-run costs with diseconomies of scale?

Answer 1

1) The major difference between short run and long run is that there'll be atleast one fixed factor in the short run while in the long run all factors are variable factors.

Eg- Consider, I open a restaurant where in the short run the land is fixed and the variable costs include labor, daily raw products etc. In the long run, the land is also not fixed as , I can get to open new branches and all factors become variable.

Consider I open a bus service where the capital is fixed for one bus and the variable cost include fuel, driver etc. In the long run the capital increases and I start to provide service for many buses where all factors become variable.

b) in order to minimise long run costs, firms go ahead with the work of outsourcing which indeed gets to reduce the burden of excess costs on the whole.