Question

Albert and his family sell beverages outside the stadium during local football matches. Local football matches take place every day because they are the main form of entertainment in the town. Albert knows that demand for beverages will depend on whom the local team is playing against. Albert has a large amount of beverages stored at home, and whatever does not get sold one day, will be stored for the next day. Based on the expected demand, Albert determines how many coolers will be needed for that day and rents the appropriate number of coolers from a local supplier (the only local supplier of coolers in town). The local supplier of coolers is an avid football fan and therefore opens the store only for a few hours early in the morning before the game. Once Albert has rented the coolers, the store closes until the next day. Which of the following statements are correct about Albert's business?A. For Georgina's business, the number of beverages is always a variable factor and the number of coolers is always a fixed factor. B. Before deciding how many coolers to rent, as long as the supply store is still open, Georgina is facing a long- run decision. C. Once Georgina has rented the coolers and the supplier has closed the store, Georgina is facing a long-run decision. D. Specifically for this problem, the long run could be described as roughly 24 hours. E. The long run is never less than 1 year.

Answer 1

Albert's decision on renting coolers is a short-run decision, where coolers are variable factors, not fixed. The long run in economics refers to a period where all factors of production can vary without constraints. The true long run for Albert's business would involve the freedom to adjust all factors, including possibly the volume of beverages stored and the number of coolers rented, which may extend beyond a daily cycle.

Step-by-step explanation:

The concept of long run in economics refers to the period during which all factors of production can be varied. In contrast, the short run is a period during which at least one factor of production is fixed. Applying these definitions to Albert's beverage business, we can analyze the given statements.

Analysis of Statements

• A: This is incorrect because the number of coolers Albert rents can vary each day based on expected demand, making it a variable factor. The number of beverages would also be a variable factor since it can be adjusted according to sales and inventory.

• B: The decision about how many coolers to rent is a short-run decision as long as the supply store is open. This is because Albert's decision is constrained by the number of coolers available and the store's operating hours.

• C: Once the coolers have been rented, the store has closed, and matches are about to start, the decision is still considered a short-run decision since the factors (coolers rented) are now fixed for that day.

• D: The long run could be described as the time needed to change the number of coolers rented, which could be roughly 24 hours. However, it would be more accurate to describe the long run as the time needed to adjust all production factors, which can be longer than 24 hours.

• E: The long run does not have a predefined time frame, such as a year; it simply refers to when all factors can be varied. Therefore, the long run could be less than a year, depending on the context of the business.

In the context of Albert’s business, a more practical definition of the long run would be the period after which he can change the number of coolers he rents or make other strategic decisions without constraints. Therefore, while 24 hours might be an immediate cycle for decision-making, the actual long-run period may extend beyond this daily cycle.

Answer 2

The correct statements about Albert's business:

C. Once Georgina has rented the coolers and the supplier has closed the store, Georgina is facing a long-run decision.

D. Specifically for this problem, the long run could be described as roughly 24 hours.

Step-by-step explanation:

From the scenario, the variable factors are the number of beverages and the number of coolers for Albert's business. This is because the number of beverages and the number of coolers depend on demand. This eliminates option A. Option B is not a long-run decision but a short-run one. The long-run is a time period when the decision-maker cannot change her decisions to meet the prevailing demands.