Economics Short Run Vs Long Run Costs Questions
In the short run, marginal costs play a crucial role in a firm's decision-making process. Marginal costs refer to the additional cost incurred by producing one more unit of output. When marginal costs are lower than the price of the product, it is profitable for the firm to increase production. Conversely, if marginal costs exceed the price, it is not economically viable to produce more. Therefore, in the short run, a firm will continue to produce as long as marginal costs are below the price, maximizing their profits.