QUESTION 2

Part 1

Faced with constantly changing conditions, why would a firm ever keep any factors fixed? What criteria determine whether a factor is fixed or variable?

A.

Some factors are simply fixed inputs by definition. For example, plant and equipment are fixed inputs regardless of the time horizon.

B.

The production of most goods requires the use of both fixed and variable inputs. Fixed inputs are inputs that are not consumed during the production process, while variable inputs are consumed during the production process.

C.

Some factors are fixed in the short run, whether the firm likes it or not, simply because it takes time to adjust the level of the variables.

D.

Some factors are fixed in the short run, whether the firm likes it or not, simply because the firm may not have the resources to adjust the level of the variables.