CFA Practice Question

There are 539 practice questions for this study session.

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
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