Question

In the long run:

a. all inputs are fixed, and average costs are constant.
b. some inputs are fixed, and others are variable.
c. all inputs are variable, and average costs are constant.
d. al inputs are variable, and average costs may decrease, remain constant, or increase as the scale of production changes.

Answer 1

In the long run, all inputs are variable, and average costs may decrease, remain constant, or increase as the scale of production changes. Firms strive to minimize long-run average costs by substituting inexpensive inputs for expensive ones.

Step-by-step explanation:

In the long run, all inputs are variable, and average costs may decrease, remain constant, or increase as the scale of production changes. Firms have the flexibility to choose their production technology and can adjust inputs based on cost considerations. They will try to substitute relatively inexpensive inputs for relatively expensive ones to minimize long-run average costs.

Firms calculate average variable cost by dividing variable cost by the total output at each level of output. Average variable costs are typically U-shaped, indicating economies of scale at low levels of output and diseconomies of scale at high levels of output. If a firm's average variable cost is lower than the market price, it could earn profits.