Firms' Profits or Production Do Not Increase in the Long

question 73

Multiple Choice

Firms' profits or production do not increase in the long run because:

• A)some factors of production are fixed in the long run.
• B)all the factors are variable in the long run.
• C)changes in factor costs completely offset any change in price level.
• D)there exists an excess capacity in the economy in the long run.
• E)factor costs remain fixed in the long run.

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Definitions:

Variable Cost

A cost that changes in proportion to the level of production or sales volume.

Differential Analysis

This analysis involves comparing the costs and benefits of alternative business decisions, focusing on the differences in outcomes under each option.

Excess Capacity

The available production capability that exceeds the current demand for products or services.

Variable Cost Method

An accounting technique that tracks production costs that vary with the level of output.