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Short Run & Long Run Cost Video Lecture | Business Economics for CA Foundation

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FAQs on Short Run & Long Run Cost Video Lecture - Business Economics for CA Foundation

1. What is the difference between short run and long run cost?
Ans. In economics, the short run refers to a period of time where at least one factor of production is fixed, while the long run refers to a period of time where all factors of production are variable. The difference between short run and long run costs lies in their respective time horizons and the flexibility of adjusting inputs. Short run costs include both fixed costs (costs that do not change with the level of production) and variable costs (costs that change with the level of production), while long run costs only consist of variable costs as all inputs can be adjusted.
2. How do short run and long run costs affect a firm's decision making?
Ans. Short run and long run costs play a crucial role in a firm's decision making process. In the short run, a firm has limited ability to adjust its inputs, which means it needs to carefully consider the trade-offs between fixed costs and variable costs. For example, a firm may have to decide whether to increase production by hiring more labor (incurring additional variable costs) or investing in new machinery (incurring additional fixed costs). In the long run, a firm has more flexibility to adjust all inputs, allowing it to optimize its production process and minimize costs.
3. What are some examples of short run and long run costs?
Ans. Examples of short run costs include rent for a factory space (fixed cost), wages for labor (variable cost), and raw material expenses (variable cost). These costs are considered short run because they can be adjusted to some extent within a specific time frame. On the other hand, examples of long run costs include the cost of purchasing new machinery, research and development expenses, and costs associated with acquiring new facilities. These costs are considered long run because they involve decisions that can be made over a longer period of time and have a greater impact on a firm's operations.
4. How do short run and long run costs impact a firm's profitability?
Ans. Short run and long run costs have a direct impact on a firm's profitability. In the short run, a firm's profitability is influenced by the balance between fixed costs and variable costs. If fixed costs are high relative to variable costs, the firm may struggle to cover its expenses and generate profits. In the long run, a firm's profitability is affected by its ability to optimize its production process and minimize costs. By adjusting all inputs, a firm can achieve economies of scale, reduce production costs, and increase profitability.
5. How can a firm minimize its costs in the short run and long run?
Ans. To minimize costs in the short run, a firm can focus on optimizing its variable costs by finding ways to improve efficiency and reduce waste. This can include streamlining production processes, negotiating better deals with suppliers, and implementing cost-saving measures such as energy conservation. In the long run, a firm can minimize costs by making strategic decisions related to its fixed costs. This can involve investing in technology and machinery that improve productivity, conducting research and development to innovate and reduce costs, and considering options for outsourcing or relocating facilities to areas with lower costs of production.
135 videos|190 docs|88 tests
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