Question

1. Describe in your own words when a firm is in the "short run" versus the "long run."

Answer 1

"Short run" versus the "Long run."

--The short run refers to the time horizon in which at least one factor of production of firm is fixed; and on contrary long run refers to the time horizon where all the factors of production of the firm are variable and there are no fixed factors.

--In a short run firm operates on law of variable proportion; and in long run firm operates on law of returns to scale

--Factor-ratio changes for the firm in short-run; however does not change in long run

--There are barriers for firms to enter in short-run; and on contrary in the long run the firms are free to enter and exit