If a firm’s labor input response to a decrease in the wage differs between the short and the long run, we know that more workers will be hired after the initial short run adjustment.
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If the cross-price demand curve for capital (relative to the wage) is vertical, the short run response by a firm to an increase in the wage is the same as its long run response.
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The more substitutable capital and labor are in production, the more likely it is that the cross-price demand curve for capital (relative to the wage) is upward sloping.
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If the rental rate increases, we know for sure that the firm will produce less and will (in the long run) use less capital.
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If the wage falls, we know for sure that the firm will produce more in the long run but we cannot be sure whether it will use more or less capital.
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The greater the degree of substitutability between capital and labor, the greater will be the downward shift in the cost curve when wage falls.
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When output price rises, the long run increase in labor input will be larger than the short run increase in labor input.
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Suppose the AC curve is U-shaped. Then an increase in a recurring fixed cost will cause the AC curve to shift up, with its lowest point shifting to the right.
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Short run average expenditure curves are tangent at their lowest point to the long run average cost curve.
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If the production technology has increasing returns to scale, short run marginal cost curves must be downward sloping.
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Long run marginal cost curves are increasing for decreasing returns to scale production technologies.
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