Short Run and Long Run in Managerial Economics

Short Run in Managerial Economics

Short-Run refers to that time period in which supply of a commodity can be increased only up to its existing production capacity. If demand has increased, there is not enough time for a firm to install new machines nor for the new firms to enter the industry. The main features of short-run are:-
(1) In the short-run there are two types of factors of production
• Fixed Factors
• Variable Factors
(2) In the short-run supply can be changed only by varying variable factors.
(3) The fixed factors cannot be changed.
(4) In short-run demand plays greater role than supply in the determination of price.
(5) The price that is determined in the short period is called Sub-normal price.
(6) There are two types of cost in the short-run:
• Fixed Cost: The costs of fixed inputs are called fixed costs. Fixed costs are costs which do not change with changes in the quantity of output.
• Variable Cost: Variable costs are those costs which are incurred on the use of variable factors of production.

Example of Short Run
Supposing you have a carpet manufacturing factory. If you run your factory for full 24 hours, you can produce 10 carpets at the most. Supposing demand for carpets increases to 20 carpets per day for two days only. You will be unable to meet this additional demand. Your maximum production capacity is limited to 10 carpets only. You do not have time to install new looms to increase your production.

Long Run in Managerial Economics

Long-Run refers to that time period in which supply of a commodity can be increased or decreased according to the changed conditions of demand. The increased demand can be met with increasing the supply by installing machines. Or new firms can enter the industry. On the contrary, if demand has gone down, some firms will discontinue their production. Price, in the long-run is therefore, more influence by supply than demand. Price that comes to prevail in the long-run is called Normal Price. The main features of long-run are:
(1) In the long-run all factors are variable.
(2) In the long-run supply can be changed by varying all factors of production.
(3) In long-run demand and supply both plays equal role in the determination of price.
(4) The price that is determined in the long period is called Normal Price.
(5) In the long-run supply can be increased or decreased according to the demand.
(6) In the long-run new firms can enter the industry and old firms can leave it.

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