Question

Distinguish between short-run and long-run production decisions and illustrate their impact on costs and economies of scale. Try these problems: 2, 18.

Short answer

In any production function, the short term simply means a shorter term than the long term. You cannot specify two periods in days, months, or years because each process has different definitions for long-term and short-term. These can only be understood by looking at whether all inputs are variable.

Step-by-step solution

Step1: Short run production decision: 

In the fast run, a company maximizing its income will increase manufacturing if the marginal value is much less than the marginal revenue. It decreases manufacturing if the marginal value is extra than marginal revenue. It continues generating if the common variable value is much less than the rate according to the unit

Step2: long run production decision:

A longer-term term is at some point when a producer or manufacturer is bendy in its manufacturing decisions.Businesses can amplify or lessen manufacturing potential or input or go out of an enterprise primarily based on anticipated profits.

Distinguish between short-run and long-run production decisions

Long-run production decision:

• In the long run, a firm defines how long it needs to be flexible with respect to all relevant production decisions.
• Most companies decide not only how many workers to hire at any given time (that is, the amount of workforce), but also what size of work (that is, the size of factories, offices, etc.) to produce in bulk.
• Again, in the long run, it defines the time required to not only change the number of workers but also to scale the factory or change the production process as needed.

Short-run production decisions

• In the short term, economists often define how long a business is scaled, and the only business decision available is the number of employees to hire. Technically, short-term situations can represent situations where the amount of labor is fixed and the amount of capital fluctuates, but that is very rare.
• The logic is different for different labor laws. Hiring and dismissing employees rather than making major changes to major production processes or relocating to new factories or offices are important here.