In Modules 3 and 4 we explained how consumers and businesses are better able to adjust purchases and production when they have more time. We are now going to explore this distinction between the short run and long run, and in particular what it means for the businesses' ability to vary the size of their operation and facility. 2. Describe in detail how Diminishing Marginal Product arises from the assumption that some of a business's inputs are in fixed quantity over the period of time that is the short run. Often the convention is to assume that the business's production facility and the capital stock within it are the fixed factors of production in the short run. Inputs such as labor, and possibly some other supplies, are often assumed to be easier to adjust and therefore "variable" in the short run. The long-run then is whatever period of time is necessary for the firm to be able to vary all inputs.
In Modules 3 and 4 we explained how consumers and businesses are better able to adjust purchases and production when they have more time. We are now going to explore this distinction between the short run and long run, and in particular what it means for the businesses' ability to vary the size of their operation and facility.
2. Describe in detail how Diminishing Marginal Product arises from the assumption that some of a business's inputs are in fixed quantity over the period of time that is the short run. Often the convention is to assume that the business's production facility and the capital stock within it are the fixed factors of production in the short run. Inputs such as labor, and possibly some other supplies, are often assumed to be easier to adjust and therefore "variable" in the short run. The long-run then is whatever period of time is necessary for the firm to be able to vary all inputs. It may be helpful to use an example in your explanation of Diminishing Marginal Product.
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