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

Explanation

(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.