Short-run, long-run, very long-run - Economics Help (2024)

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Short-run, long-run, very long-run - Economics Help? ›

Short run

The main difference between long run and short run costs is that there are no fixed factors in the long run; there are both fixed and variable factors in the short run. In the long run the general price level, contractual wages, and expectations adjust fully to the state of the economy.

Short-run production has at least one input (cost) factor fixed and unchangeable as a company completes its current contracts. Long-run production is instead focused on changing and mixing inputs (costs) at the end of current supply contracts to maximize profits in the long term. Both are vital to an enduring company.

In the short run, the scale of production is fixed (there is at least one fixed cost). For firms, the quantity of labour might be flexible, whilst the quantity of capital is fixed. In the long run, the scale of production is flexible and can be changed.

The short-run aggregate supply curve is upward sloping while the long-run aggregate supply curve is vertical. The SRAS is upward sloping because of the misperceptions theory, the sticky wages theory, and the sticky prices theory.

Short run – where one factor of production (e.g. capital) is fixed. This is a time period of fewer than four-six months. Very long run – Where all factors of production are variable, and additional factors outside the control of the firm can change, e.g. technology, government policy. A period of several years.

The distinction between the short run and the long run in macroeconomics is important because many macroeconomic models conclude that the tools of monetary and fiscal policy have real effects on the economy (i.e. affect production and employment) only in the short run and, in the long run, only affect nominal variables ...

Short-run growth is simply an increase in a country's 'gross domestic product' or 'GDP', whereas long-run growth is an increase in the country's productive capacity.

The short-run production function refers to a period where at least one input is fixed, limiting the ability to adjust production levels. In contrast, the long-run production function represents a period where all inputs can be adjusted, allowing for greater flexibility in production choices.

Explanation: The short run consumption function has a positive intercept and a relatively low marginal propensity to consume (. 6+ or so), while the long run consumption function is essentially proportional to income (as an empirical matter, no significant constant term and a much larger marginal propensity to consume.

What is the relationship between short run and long run cost? ›

In summary, the long-run cost curve reflects both economies and diseconomies of scale, while the short-run cost curve reflects the degree of increasing or decreasing returns to scale. Moreover, both the long-run and short-run cost curves are U-shaped, with the minimum point at the optimal scale of production.

If profit is negative, there is incentive for firms to exit the market. If profit is zero, there is no incentive to enter or exit. For a competitive market, economic profit can be positive in the short run. In the long run, economic profit must be zero, which is also known as normal profit.

The very short run is a production time period that is so short that a firm is unable to change the quantities of any input, that is, there are no variable inputs. With no variable inputs, the firm is unable to change the quantity of output. The primary task of the firm is to sell the output that has been produced.

Thus, full employment corresponds to a higher level of potential GDP, which we show as a rightward shift in LRAS from LRAS₀ to LRAS₁ to LRAS₂. Shifts in Aggregate Supply (a) The rise in productivity causes the SRAS curve to shift to the right.

What causes the long run aggregate supply curve to shift? Factors that shift the long-run aggregate supply include labor changes, capital changes, natural resources, and technology changes.

The short-run aggregate supply curve is upward sloping because the quantity supplied increases when the price rises. In the short-run, firms have one fixed factor of production (usually capital ). When the curve shifts outward the output and real GDP increase at a given price.

Short-run growth is simply an increase in a country's 'gross domestic product' or 'GDP', whereas long-run growth is an increase in the country's productive capacity.

in the long run all resources are variable, while in the short run at least one resource is fixed.

In the short run, there are both fixed and variable costs. In the long run, there are no fixed costs. Efficient long run costs are sustained when the combination of outputs that a firm produces results in the desired quantity of the goods at the lowest possible cost.