The Short Run Is Essay

Submitted By nikhilssonic1995
Words: 468
Pages: 2

The short run is “A production period of time in which at all inputs in the production process are fixed, meaning the quantity of output itself is fixed.” (Glossary.econguru.com, 2014) and the long term is defined not as a specific period of time, but is instead defined as the time horizon needed for a producer to have flexibility over all relevant production decisions." therefore in the short run certain forces over the factors of production can vary such as promotion of labor, wages increase and various other factors but the scale of production in which a firm operates cannot be changed in the short run such as buying or changing factory or establishment location, buying of heavy machinery. For firms to achieve these operational goals; it is only possible in the long run where such investments can be done freely; Therefore it is reasonable to say that a firms operational scale can be seen by how much influence in terms of change it has over its factors of production. A firm operating on a very big scale such as Porsche would have problems to change its factors of production in the short-run such as opening a new plant compared to some local vendor who similarly would achieve this as a long run goal but would have different time lengths compared to Porsche. The aim of an organization is to increase its economies of scale which is "Economies of scale is an economics term that means large entities, whether businesses, non-profits or governments, can reduce costs simply because of their size. This gives them a competitive advantage over smaller companies." (Amadeo, 2014), but besides economies of scale it is important that a firm achieves increasing returns of scale. "There is no fixed factor of production in the long run. The law of returns to scale describes the relationship between variable inputs…