Comparison |
Short Run |
Long Run |
(i) Meaning |
- The short run is defined as the period of time in which some factors of production or at least one factor is fixed i.e. does not vary with output.
- Thus, in the short period some factors are FIXED FACTORS E.g. Factory building, machinery, management, etc. and some are VARIABLE FACTORS E.g. Labour, raw-material, power, fuel, etc.
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- The long run is defined as the period of time in which all factors may vary.
- In the long run, all factors become variable and so there is no distinction between fixed and variable factors.
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(ii) Scale of Production OR Size of the Firm |
- In the short run, the output is produced with a GIVEN SCALE OF PRODUCTION i.e. the size of plant or firm (and so the production capacity) remains unchanged.
- Hence, production can be increased or decreased only by changing the amount of variable factors.
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- In the long run, the output is produced with the CHANGE IN THE SCALE OF PRODUCTION i.e. the size of plant or firm can be increased (and so the production capacity).
- Hence, production can be increased by varying all factors i.e. fixed factors (of short period) as well as variable factors.
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(iii) Production Law |
- The production function which is studied in the short run period is called as the Law of Variable Proportions.
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- The production function which is studied in the long run period is called as the Law of Returns to Scale.
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(iv) Decisions about Change in factors |
- The decisions to change the amount of variable factors (like raw material, labour, etc.) are taken very frequently depending upon changes in demand of the commodity.
- Hence, short run is the ‘ACTUAL PRODUCTION PERIOD’ during which some factors are fixed while some are variable.
- Thus, firms operate in the short run period.
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- The decisions to change the amount of fixed factors i.e. scale of production or to close down the firm are taken only once in a while.
- Hence, long run is the ‘PLANNING PERIOD’.
- Thus, firms plan in the long run period.
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(v) Nature of Supply |
- In the short run period, supply can be adjusted upto a limited extent as per changes in demand.
- In other words, supply is relatively inelastic.
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- In the long run period, supply can be fully adjusted as per changes in demand.
- In other words, supply is relatively elastic.
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(vi) Nature of Cost |
- In short run period, cost is classified as FIXED COST and VARIABLE COST.
- Fixed cost is the cost of fixed inputs and Variable cost is the cost of variable inputs.
- Fixed cost is the main feature of short run period
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- In long run period ALL COSTS ARE VARIABLE.
- Variable cost is the main feature of long run period.
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(vii) Effect on Price |
- In short-run, the price determination of a commodity is more influenced by –
(a) The demand forces than supply forces because supply in short-run is relatively inelastic, and
(b) The UTILITY of the commodity.
- The short-run price is called SUB-NORMAL PRICE
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- In long-run, the price determination of a commodity is more influenced by-
(a) The supply forces than demand forces because supply in long-run is relatively elastic, and
(b) The COST OF PRODUCTION of the commodity.
- The long-run price is called NORMAL PRICE.
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(viii) Average Cost Curve |
- The short-run average cost curve is ‘U’ shaped.
- Its U-shape is explained with the Law of Variable Proportions.
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- The long-run average cost curve is also U shaped.
- But its U- shape is not as prominent as short-run average cost curve.
- Its U-shape is explained with the Law of Returns to Scale.
- Long-run average cost curve is also called ‘PLANNING CURVE’ and ‘ENVELOPE CURVE’.
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(ix) Profit of Firms |
In the short-run period –
- The firms under perfect competition on being at equilibrium may earn normal profits, super normal profits or incur losses;
- The monopoly firm on being at equilibrium may earn normal profits, super normal profits or incur losses;
- The firms under monopolistic competition on being at equilibrium may earn normal profits, super normal profits or incur losses.
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In the long run period-
- The firms under perfect competition earn only NORMAL PROFITS and operate at optimum level.
- The monopoly firm can earn SUPER NORMAL PROFITS and operate at sub-optimum level.
- The firms under monopolistic competition earn only NORMAL PROFITS and operate at sub-optimum level.
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