Question

A basic assumption of the long run is that a firm:

a. can change the amount of labor and capital that it employs.
b. can change the amount of capital that it employs but not the amount of labor.
c. cannot change the amount of labor or capital that it employs.
d. cannot change the amount of capital that it employs but can change the amount of labor.

Answer 1

In the long run, a firm can change the amount of labor and capital that it employs. Therefore, the correct option is A.

Step-by-step explanation:

In the long run, a firm can change the amount of labor and capital that it employs. This is a basic assumption of the long run. In contrast, in the short run, firms cannot change the amount of fixed inputs, such as capital. Therefore, option (a) 'can change the amount of labor and capital that it employs' is the correct answer.