Which type of business decisions often have long-run effects and are harder to change than price decisions?

• A. Inventory management decisions
• B. Advertising budget decisions
• C. Short-term hiring decisions
• D. Capital investment decisions

Answer: (D)

Verified step by step guidance

1. Understand the difference between short-run and long-run decisions in microeconomics. Short-run decisions typically involve variables that can be changed quickly, such as prices, inventory, or hiring, while long-run decisions involve changes to fixed inputs or assets.
2. Identify the nature of each option: Inventory management and short-term hiring decisions are usually flexible and can be adjusted relatively quickly, so they are short-run decisions.
3. Recognize that advertising budget decisions can sometimes be adjusted in the medium term but are generally more flexible than capital investments.
4. Focus on capital investment decisions, which involve purchasing or upgrading physical assets like machinery, buildings, or technology. These decisions require significant resources and time, making them harder to reverse or change quickly.
5. Conclude that capital investment decisions have long-run effects because they commit the firm to a certain scale or capacity, influencing production and costs over an extended period.