For example, a firm may implement change by increasing (or decreasing) the scale of production in response to profits (or losses), which may entail building a new plant or adding a production line.
In the long run production function, the relationship between input and output is explained under the condition when both, labor and capital, are variable inputs. In the long run, the supply of both the inputs, labor and capital, is assumed to be elastic (changes frequently).
Long run total cost refers to the minimum cost of production. It is the least cost of producing a given level of output. Thus, it can be less than or equal to the short run average costs at different levels of output but never greater.
The long run is the period of time when all costs are variable. The long run depends on the specifics of the firm in question—it is not a precise period of time. If you have a one-year lease on your factory, then the long run is any period longer than a year, since after a year you are no longer bound by the lease.
Q = f (L, K) It is also called as production with two variable factor inputs, labour (L) and capital (K) in particular. A commonly discussed form of long run production function is the Cobb-Douglas production function which is an example of linear homogenous production functions.
The long-run production function is different in concept from the short run production function. Here, all factors are varied in the same proportion. The law that is used to explain this is called the law of returns to scale. It measures by how much proportion the output changes when inputs are changed proportionately.
Short Run and Long Run Costs. Long run costs have no fixed factors of production, while short run costs have fixed factors and variables that impact production.
The short run in macroeconomics is a period in which wages and some other prices are sticky. The long run is a period in which full wage and price flexibility, and market adjustment, has been achieved, so that the economy is at the natural level of employment and potential output.
Economic Growth In macroeconomics, long-run growth is the increase in the market value of goods and services produced by an economy over a period of time. The long-run growth is determined by percentage of change in the real gross domestic product (GDP).
Long Run Equilibrium of the Firm In the long run, a firm achieves equilibrium when it adjusts its plant/s to produce output at the minimum point of their long-run Average Cost (AC) curve. This curve is tangential to the market price defined demand curve. In the long run, a firm just earns normal profits.
The short run production function can be understood as the time period over which the firm is not able to change the quantities of all inputs. Conversely, long run production function indicates the time period, over which the firm can change the quantities of all the inputs.
The correct option is e. No factors of production are fixed in the long run.