Question

Which of the following must be true of the long run?

a) All inputs are variable
b) Some inputs are fixed
c) Total cost equals variable cost
d) Average variable cost is constant

Answer 1

All inputs are variable in the long run, allowing firms to choose their production technology and inputs to produce at the lowest possible long-run average cost.

Step-by-step explanation:

The correct answer to the question is a) All inputs are variable in the long run. In economic terms, the long run is a period during which all inputs can be varied by firms, and no inputs are considered fixed. Firms have the flexibility to change their production technology, capital stock, and scale of operation. Therefore, the concept of diminishing marginal productivity, which applies when some inputs are fixed, does not occur in the long run. Firms aim to substitute inputs where possible to achieve the lowest long-run average cost. Although the average variable cost may be U-shaped in the short run, its behaviour, in the long run, can differ as firms adjust all inputs to find the most cost-effective methods of production.