Question

Short-run costs are calculated with at least one input fixed and thus with a fixed cost. Long-run costs are calculated with all the inputs variable.

Provide examples and explanations of some of the following short-run and long-run circumstances of "typical" firms:

1) A firm with a small capacity to produce relative to the demand in the market;

2) A firm with a large capacity to produce relative to the demand in the market;

3) A firm that experiences economies of scale as it increases its plant capacity;