Short run and long run
When analyzing the process of production, it is convenient to introduce the classification of inputs as fixed or variable. A fixed input is one for which the level of usage cannot readily be changed. To be sure, no input is ever absolutely fixed, no matter
how short the period of time under (a) . However, the cost of immediately
varying the use of an input may be so great that, for all practical purposed, the input is fixed. For example, buildings, major pieces of machinery, and managerial personnel are inputs that generally cannot be rapidly augmented or diminished. A variable input, on
the other hand, is one for which the level of usage may be (b) quite readily in
response to desired changes in output. Many types of labour services as well as certain raw and processed materials would be in this category.
As mentioned in text 23, economists distinguish between the short run and the
long run. The short run (c) to that period of time in which the level of usage of
one or more of the inputs is fixed. Therefore, in the short run, changes in output must be accomplished exclusively by changes in the use of the variable inputs. Thus, if
producers wish to (d) output in the short run, they must do so by (e) more
hours of labour (a variable service) and other variable inputs, with the existing plant and equipment. Similarly, if they wish to reduce output in the short run, they may discharge only certain inputs. They cannot immediately "discharge" a building or a blast furnace (even though its use may fall to zero). In the context of our simplified production function, we might consider capital to be the fixed input and write the resulting short-run production function as
Q = f(L, K)
where the bar over capital means that it is fixed. Furthermore, since (fj is fixed,
output depends only on the level of usage of labour, so we could write the short-run production function as simply
Q = f(L)
The long run is defined as that period of time (or planning horizon) in which all inputs are variable. The long run refers to that time in the future when output changes can be accomplished in the manner most advantageous to the producers. For example, in the short run a producer may be able to expand output by operating the existing plant for
more (g) per day. In the long run. It may be more (h) to install
additional productive facilities and return to the normal workday.
2. Comprehension check.
Say if the following sentences are true or false. Correct the false ones.
Buildings, machinery and managerial personnel are referred to variable input.
In the short run changes in output must be done by changes in the use of labour services or raw materials.
The capital is considered to be fixed input.
The long run refers to that time in which all inputs are variable.
In the long ran a producer may expand output by installing additional productive facilities.
Discussion
Work in pairs.
Discuss what you have learned about the short ran and long ran.