Explain the concepts of the short run an...

Explain the concepts of the short run and the long run.

Text Solution

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(i) Short run:
( a) A short run refers to the period of time in which a firm cannot change some of its factors like plant, machinery, building, etc. due to insufficiency of time but can change any variable factor like labour, raw material, etc.
(b) Thus, in short run, there will be some factors of production that are fixed at predetermined levels, e.g., a farmer may have fixed amount of land.
(ii) Long run:
(a) A long run is a time period during which a firm can change all its factors of production including machines, building, organization, etc.
(b) In other words, it is a period of time
during which supplies can adjust itself to change in demand.
Note: (i) Mind, here the terms long run and short run are functional and do not refer to a calendar month or a year.
(ii) This distinction depends merely upon how quickly factor inputs can be change by producers in an industry.

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in the long run

permanently

universally

occasionally

ultimately

To economists, the main difference between short run and long run is that:

1.In short run all inputs are fixed, while in long run all inputs are variable.

2.In short run the firm varies all of its inputs to find the least cost combination of inputs.

3.In short run, at least one of the firm's input level is fixed.

4.When marginal product is at a maximum, average product equals marginal product, and total product is rising.

Suppose output increases in the short run, than the Total cost will:

increase due to an increase in fixed costs only.

increase due to an increase in variable costs only.

increase due to an increase in both fixed and variable costs.

decrease if the firm is in the region of diminishing returns.