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Short Run Vs Long Run

The document discusses the concepts of average product, marginal product, production functions, and the differences between short run and long run time horizons. It provides examples and tables to illustrate these concepts. Specifically, it defines average product as total product divided by the number of units, and marginal product as the change in total product divided by the change in units. It includes a table showing a production function and how average product and marginal product change with different units of a variable input. It also contrasts short run, where some inputs are fixed, from long run where all inputs are variable.

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32 views2 pages

Short Run Vs Long Run

The document discusses the concepts of average product, marginal product, production functions, and the differences between short run and long run time horizons. It provides examples and tables to illustrate these concepts. Specifically, it defines average product as total product divided by the number of units, and marginal product as the change in total product divided by the change in units. It includes a table showing a production function and how average product and marginal product change with different units of a variable input. It also contrasts short run, where some inputs are fixed, from long run where all inputs are variable.

Uploaded by

kemoyanolan12
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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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

Production function as a graph


60

50

40

30

20

10

0
0 1 2 3 4 5 6 7 8 9
-10

Total product Average Product Marginal Product

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.

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