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Long-Run Costs and Output Decisions

For cases A through F in the following table, would you

(1) operate or shut down in the short run and

(2) expand your plant or exit the industry in the long run?


Total revenue 1,500 2,000 2,000 5,000 5,000 5,000
Total cost 1,500 1,500 2,500 6,000 7,000 4,000
Total fixed cost 500 500 200 1,500 1,500 1,500

Solution Preview

The question can be explained by two definitions; under what condition do you shut down in the short run and the long run.

In the short run, we are concerned with covering only our variable costs. Variable costs are total cost minus fixed cost. For example, variable costs in a restaurant includes food and labor, but not the building. The building would be part of fixed cost because you have to have it no matter how many customers you have.

In the long run, we are ...

Solution Summary

Long-Run Costs and Output Decisions are examined clearly.