explain the concept of short run and the long rim as associated with a firm in 500 words
hello aspirant
In economics the long run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long run contrasts with the short run, in which there are some constraints and markets are not fully in equilibrium.
In a long run, firms change production levels in response to (expected) economic profits or losses, and the land, labour , capital goods and entrepreneurship vary to reach the minimum level of long-run average cost . In the simplified case of plant capacity as the only fixed factor, a generic firm can make these changes in the long run:
- enter an industry in response to (expected) profits
- leave an industry in response to losses
- increase its plant in response to profits
- decrease its plant in response to losses
All production in real time occurs in the short run. In the short run, a profit-maximizing firm will:
- increase production if marginal cost is less than marginal revenue
- decrease production if marginal cost is greater than marginal revenue
- continue producing if average variable cost is less than price per unit, even if average total cost is greater than price
- shut down if average variable cost is greater than price at each level of outputs
hope this helps
