Theory of Production: Short Run and Long Run

The concepts of the short run and long run are very important in the theory of production.

For the firm requires time if it desires to have changes in the quantities of the inputs used by it. The firm cannot change the quantity of any input as soon as it decides to have that change.

This is true for almost all the inputs. But the length of time required is not the same for all the inputs. For example, if the firm decides to use more of labour, it may have to wait for 2 days only to implement that decision.

Again, if the firm wants to have more of raw materials, it may have to wait for, say, 15 days. Now the length of time required by the firm to increase or decrease the use of some of the inputs like labour, raw materials, fuels, etc. may be relatively short like 2 or 15 or 20 days.

That is why it is said that the quantities of these inputs may be changed in the short run. But there are some other inputs like workshop space, heavy equipment’s, the services of engineers and managers, etc. The firm cannot change the quantities of these inputs in the short run.

These changes would require a relatively long length of time, a long run so to say. The Long run may be 6 months for some input, 1 year for some other input, and even 2, 3 or 4 years for some inputs.

Now the inputs of which the quantities may change in a relatively short period of time are called the variable inputs, for their quantities may vary more easily with respect to time. So labour, raw materials, fuel, etc. are known as the variable inputs.

On the other hand, quantities of the inputs like workshop space, heavy equipment’s, services of engineers or managers cannot be varied in the short run—their quantities are treated as fixed in the short run. So they are called the fixed inputs.

Now we should have some idea about what is precisely the short run and what is the Long run in the production process of a particular firm for they are not the same for all the production processes. Broadly we may say, the minimum length of time that is required to effect changes in all the variable inputs in a production process may be considered to be the short run in that production process.

For example, let us suppose that three variable inputs are used by a firm and their quantity changes require 10, 15 and 30 days of time respectively. In this case, the short run may be taken to be 30 days or 1 month for the firm may effect required changes in all the variable inputs if it gets at least 1 month of time.

Similarly, the minimum length of time that is required to effect changes in all the fixed inputs in a production process, may be considered to be the long run in that process.

For example, if the firm uses three fixed inputs and their quantity changes require 10 months, 15 months and 24 months, respectively, then the long run here may be taken to be 24 months or 2 years. For the firm, in this case, may have all the required changes in the fixed input quantities implemented if it is allowed at least 2 years of time.

We should remember here that the difference between the variable and the fixed inputs is relevant only in the short run. In the long run there cannot be such distinction because all the inputs, variable or fixed, are variable in the long run.