Short Run vs Long Run PDF

Average product = [Total product] No of units (L) Marginal Product = [Change in total product (TP)] Change in No of units (L) [Production function as a table or schedule] Units of variable inputs (L) Total product Average Product Marginal product 0 0 0 1 14 14 14 2 26 13 12 3 36 12 10 4 44...

Average product = [Total product] No of units (L) Marginal Product = [Change in total product (TP)] Change in No of units (L) [Production function as a table or schedule] Units of variable inputs (L) Total product Average Product Marginal product 0 0 0 1 14 14 14 2 26 13 12 3 36 12 10 4 44 11 8 5 50 10 6 6 54 9 4 7 56 8 2 8 56 7 0 9 54 6 -2 [\[CHART\]]{.chart} **[Short Run vs. Long Run]** In the study of economics, the long run and the short run don\'t refer to a specific period of time, such as five years versus three months. Rather, they are conceptual time periods, the primary difference being the flexibility and options decision-makers have in a given scenario. There is no fixed time that can be marked on the calendar to separate the short run from the long run. The short run and long run distinction varies from one industry to another.\" **[Short run and long run time horizon]** The short run is the period of time in which at least one factor of production is fixed or cannot be varied. Example of fixed factors are capital and land. Variable factors include labour. In the short run a firm increases production by employing more units of the variable inputs, given the fixed input. This will lead to the law of diminishing marginal product or the law of diminishing returns. This law states that as successive units of a variable factor are added to a fixed factor, the marginal product may increase but eventually will begin to decrease. In this example, the law of diminishing return sets in after the first unit of variable input is employed. The law of diminish returns takes place only in the short run since it's based on the premise that one factor of production is fixed. **[Long run production function]** The long run is the period of time when all factors are variable. Therefore, factors that were fixed in the short run such as machinery and buildings are now variable. In the short run, the time is too brief to vary these factors but in the long run, the time is sufficient to change these factors. In the long run, there is no diminishing returns, what the firm experiences is returns to scale. The term returns to scale refers to the rate of change in the firm's output arising from a proportional change in all its inputs.