- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 5. Understanding Economies and Diseconomies of Scale
CFA Practice Question
The key difference between the short run and the long run is that ______
A. the long run is a longer period of time than the short run.
B. in the short run, the firm can expand its production facility as its workforce grows.
C. in the long run there are no diminishing returns.
Explanation: Facility expansion occurs only in the long run.
User Contributed Comments 8
User | Comment |
---|---|
Murrayman | So apparently 'production facility' does not mean adding workforce to a fixed facility. |
prachirp | There is no fixed facility.In the long run everything is variable. |
aakash1108 | diminishing returns is a short run concept and not long run - i guess that's why the answer is C |
bhuman | Its not that diminshing returns do not exist in the long run, they do. If you keep the supply of labor constant, and increase capital, you will experince diminishing returns on your capital. I guess what the question is getting at is that you never have to experince dimishing returns in the long run because none of your costs are fixed. |
JepTang | I agree. If for example, you observed that demand for a good is decreasing in the short run then you can make adjustments in your factors of production in order to perhaps, at least maintain your Marginal Product benefit. I hope it makes sense. |
cong | capital, including facility, is assumed to be fixed in the short run. |
Chebum | agree with bhuman |
endurance | thanks cong |