INSTRUCTION: Each reply must be 130 words or more and include direct questions.ORIGINAL DISCUSSION QUESTION: Fixed costs are often defined as “fixed over the short run.” Does this mean that they are not fixed over the long run? Why or why not? What is the difference between short-run and long-run decisions? Give an example of each. Post must be 380 words or more (not including references).
STUDENT 1: Robert
Fixed over the short run is a fixed cost that does not change based on the level of production. Fixed costs are the costs that cannot be altered (Khan Academy, n.d.). Production can be increased if the marginal cost is less than the marginal revenue. The short run can have fixed and variable costs, the long run has no fixed runs.
Difference between the short-run and long-run decisions are that long-run cost is variable and can be adjusted. The short run is able to adjust prices through production levels (Khan Academy, n.d.). No fixed costs in the long run; short run has both fixed and variable factors. The long run will include price level, contractual wages, and expected adjustments per the economy (Lumen, n.d.). The short run cannot always adjust as the time may be too short for adjusting. The short-term costs can determine if the firm will meet its future production and/or financial goals (Lumen, n.d.).
Time is the difference between the short run and the long run decisions. As the short run does not consider the time or money involved. The long run would consider the time and money involved. In the long run, the business will fail if all the costs are not covered.
Short run: with fixed and variable could be that a new building is going up and the capital is fixed for the year and variable is the number of laborers needed.
Long run: is the variable amounts changing. The price levels and wage rates change with the state of the economy. The size of the building can change.
Khan Academy. (n.d.). The Structure of Cost in the Short Run. Retrieved from https://www.khanacademy.org/economics-finance-doma…
Lumen. (n.d.). Boundless Economics. Production Costs. Retrieved from https://courses.lumenlearning.com/boundless-econom…
STUDENT 2: Amanda
Fixed costs are opposite of variable costs. Fixed costs stay the same regardless of changes in demand whereas variable costs vary depending on factors such as demand. With fixed costs often being defined as “fixed over the short run” I would say that this does mean that these costs are not fixed over the long run. There are two statements in the textbook that helped me make this decision: “a fixed cost is fixed only in relation to a given wide range of total activity or volume (at which the company is expected to operate) and only for a given time span (usually a particular budget period)” and “fixed costs may change from one year to the next” (Horngren, C., Datar, S., and Rajan, M., 2013).
I had a little more trouble in differentiating short-run decisions and long-run decisions in terms of fixed costs. From previous courses I would say the short-run is a year out with some exceptions and anything further out would be long-run. However, this is more about financial statements than it is about decision making. So, as I was doing a little research, I came across mostly economic differentiations which seemed to make more sense to me. What made the most sense to me was a statement made by Mike Moffatt: “In the study of economics, the long run and the short run don’t refer to a specific period of time, such as five years versus three months. Rather, they are conceptual time periods, the primary difference being the flexibility and options decision-makers have in a given scenario” (2018).
Even though I feel like I understand the difference between short run and long run decisions, when it came to come up with an example of each, I wasn’t entirely sure I really understand. An example of a short run decision would be labor needed. An example of a long run decision would be choosing whether or not to buy another building.
Horngren, C., Datar, S., and Rajan, M. (2013). Cost accounting. (15th ed.). Retrieved June 10, 2019 from https://online.vitalsource.com/#/books/97813234844….
Moffatt, M. (2018). The short run vs. the long run in microeconomics. Retrieved June 10, 2019 from https://www.thoughtco.com/the-short-run-vs-long-ru….