Short Run

The short run is a period of time in which at least one factor of production is fixed. This means that the quantity of at least one input cannot be changed in the short run. The most common factor of production that is fixed in the short run is capital. Capital is the physical plant and equipment used to produce goods and services.

In the short run, a firm can only change the quantity of labor it uses to produce output. The firm's production function shows the relationship between the quantity of labor used and the quantity of output produced. The production function is typically upward sloping, meaning that as the quantity of labor increases, the quantity of output also increases. However, the production function eventually becomes steeper, meaning that the marginal product of labor (the additional output produced by hiring one more worker) declines.

The short run is important because it is the period of time in which firms make decisions about how to produce their output. In the short run, firms cannot change the size of their plant and equipment, so they must decide how to use the capital they have available. They must also decide how many workers to hire.

The short run is also important because it is the period of time in which firms make decisions about how to price their products. In the short run, firms are unable to change their prices, so they must base their prices on the costs of production.

The long run is a period of time in which all factors of production are variable. This means that the quantity of all inputs can be changed in the long run. The long run is important because it is the period of time in which firms can make all of their decisions about production. In the long run, firms can choose the size of their plant and equipment, the number of workers they hire, and the prices they charge for their products.

The short run and the long run are two important concepts in economics. The short run is the period of time in which at least one factor of production is fixed. The long run is the period of time in which all factors of production are variable.