Although capital is a variable factor in the long run, once chosen it becomes a fixed factor for a long time. A profit- maximizing firm must therefore select a method of production that is
A) currently economically efficient.
B) labour intensive, as labour is always a variable factor.
C) currently economically efficient and sufficiently flexible to adapt to changing factor prices over time.
D) technologically advanced beyond anything currently used.
E) adaptable to wide ranges of output over time.

Question

Quizplus · Accepted Answer

The firm must choose a method of production that is currently economically efficient, as well as sufficiently flexible to adapt to changing factor prices over time. This allows the firm to maximize profits in the long run as it can adjust its inputs in response to changes in factor prices without incurring high costs of switching to a completely different production method. Labour-intensive methods may not be the most efficient option in the long run, and technological advancement beyond what is currently used may not be necessary or feasible for the firm's operations. Adapting to a wide range of output over time is also important, but not as crucial as having the flexibility to adjust to changing factor prices.

Although Capital Is a Variable Factor in the Long Run