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4541-econ

Subject: Long Run,Short Run,Law of dimishing Marginal return
Details:
Define Short Run and Long Run. Discuss three types of decisions that firm have to take in Long Run.

State the Law of Diminishing Marginal Returns. Differentiate between Diminishing Returns to Factors and Diminishing Returns to Scale.

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Define Short Run and Long Run. Discuss three types of decisions that firm have to take in Long Run.
<br>The short run is a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied. The long run is a period of time in which the quantities of all inputs can be varied.
<br>The long run and the short run do not refer to a specific period of time such as 3 months or 5 years. The difference between the short run and the long run is the flexibility decision makers have.
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<br>In the short run, sellers can make losses in a competitive market. This happens if they have fixed costs and the market price is too low relative to their average costs.
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<br>However, in the long run firms can change all inputs and thus they can eliminate fixed costs by leaving the industry. This implies that profits must never be negative in the long run.
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<br>The flip side is that in a competitive market new firms can enter the ...

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