Difference between short run and long run

Difference between Short Run and long Run

PRESENTING BY: MUHAMMAD RIAZ

Definition:

• Long Run:

• The time period in which all factors of production can be different

• Short Run:

• A time period when at least one input, such as plant size, cannot be changed

• Plant Size• The physical size of the

factories that a firm owns and operates to produce its output.

Difference:

• Long Run:

• All recourses are fixed

• Long-run decisions are not easily reversed.

• Short Run:

• Other resources used by the firm (such as labor, raw materials, and energy) can be changed in the short run.

• Short-run decisions are easily reversed.

Short run demand vs. long run demand:

• Short run demand is the demand with its immediate reaction to price changes, income fluctuations and so on.

• Long run demand is that demand which will ultimately exist as a result of the changes in pricing, promotion or product improvement, after enough time is allowed to let the market adjust itself to the given solution.

Long Run and Short run Cost

• Long run costs have no fixed factors of production

• Short run costs have fixed factors and variables that impact production.

• Variable cost A cost that changes with the change in volume of activity of an organization.

• Examples variable costs include raw materials, packaging, and labor.

Which are directly involved with company's manufacturing process.

• Fixed cost Business expenses that are not dependent on the level of goods or services produced by the business.

• Examples Fixed costs often include land, capital, entrepreneur, etc.

Short Run vs. Long Run Supply Curves

• Long Run response to change in price is much greater than Short Run response.

• The Long Run supply curves is much flatter than the short run curve, means that the quantity of “apple” is increases by a larger amount in the long run.

• The Short Run supply curve is much steeper than the long run supply curve because there are diminishing returns in the short run.

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