Which of the following statements is TRUE?
A)Labor is always a variable input, whereas Capital is always a fixed input.
B)Labor is always a fixed input, whereas Capital is always a variable input.
C)Labor can be a fixed input., and Capital can be a variable input.
D)Labor can be a fixed input, and Capital is always a fixed input.

Question

Quizplus · Accepted Answer

Both labor and capital can be either fixed or variable inputs, depending on the specific production process and the short-run vs. long-run time horizon being considered. For example, if a restaurant hires a fixed number of cooks and servers for a given week, then labor is a fixed input in the short run (since it cannot be altered quickly), but becomes a variable input in the long run (since the restaurant can hire or fire workers as needed). Similarly, if a firm owns a building and machinery that cannot be easily sold or acquired, then capital is a fixed input in the short run, but can become a variable input in the long run if the firm invests in new equipment or expands its facilities. Therefore, statement A and B are both false, and statement D is also false because it claims that capital is always a fixed input.

Which of the Following Statements Is TRUE