Chapter 7 questions 1,2,3

Chapter 7 question

1. The short run is considered the fixed plant size, meaning the land and capital resources are limited. The labor resource, however, is not limited; it can be changed, for example, the amount of workers or the length of working time. All the production is done in the short run. The long run is the planning phase, the firm plans how it could be more efficient lowering cost, or how to produce more. The long run is made up of many short run. The long run is considered the variable plant size, where all the factors or production are variable, land, labor, and capital. The only thing halting a firm's efficiency and total product is the state of technology, for example a ox plow versus a tractor.
   
2. As more units of the variable factor, labor, are added to the fixed factors of production, capital and land, the output of the extra input will eventually diminish. This is because there is not land or not enough capital for the increase amount of labor. For example, the soup in the kitchen will not amazing if 100 cooks work on it at once, they will just get in each other's way.
   

3. The accountant's definition of profit is the total revenue minus the total cost. The economist's definition of profit is the total revenue minus the opportunity cost. For example, if you start a business for $100,000 and your profits are $120,000. An accountant would say your profits are $20,000. An economist would say it would be an economic loss, if you were employed and had received $45,000. There is an economic loss of $25,000, $45,000 - $20,000 = $25,000, because of the opportunity cost of not being employed opposed to employing someone else.