Question

A business firm is in the short run (LO6) a) virtually all the time d) rarely b) most of the time e) never c) occasionally

Short answer

A business firm is in the short run most of the time (b), as they need to make adjustments to variable inputs such as labor and raw materials while capital inputs, like land and machinery, remain fixed. This dynamic places firms in the short run for a significant portion of their operation time.

Step-by-step solution

Understanding Short Run in Economics

In economics, the short run is a period in which at least one of a firm's inputs is fixed, meaning they cannot be easily changed or adjusted. For most businesses, this fixed input is typically capital, such as land, machinery, or equipment. On the other hand, variable inputs such as labor and raw materials can be adjusted in the short run.

A Business Firm's Situation in the Short Run

As businesses operate, they often face situations where they need to make adjustments in response to changes in market conditions, consumer demands, or other external factors. In most cases, these adjustments need to be made quickly, meaning that capital inputs remain fixed while variable inputs (like labor) are changed. This dynamic places the business firm in the short run for most of its operation time.

Answering the Exercise

Based on the understanding of the short run in economics and the business firm's situation with fixed and variable inputs, we can now identify which option best describes when a business firm is in the short run: a) virtually all the time d) rarely b) most of the time e) never c) occasionally The correct answer is (b) most of the time, as businesses need to make adjustments to variable inputs within the constraints of fixed capital inputs, which places them in the short run for a significant portion of their operation time.