Question

a. What is the distinction made by economists between the short run and the long run? Why is it important?

b. Cite and explain examples from various sized firms and/or various products  in the garment industry

Answer 1

a. What is the distinction made by economists between the short run and the long run? Why is it important?

Short run versus the long run

--The short run refers to the time horizon in which at least one factor of production is fixed; and on contrary long run refers to the time horizon where all the factors of production are variable and there are no fixed factors.

--Short run operates on law of variable proportion; and long run operates on law of returns to scale

--Factor-ratio changes in short-run; however does not change in long run

--There are barriers to entry in short-run; and on contrary in the long run the firms are free to enter and exit

Importance of the distinction:

In economics, a distinction between the short run and a long run is important as these are used as reference time approaches. Numerous economic concepts such as supply, demand, costs, input, and other variables are set into either a short run or a long run for the prediction or examination of the changes from one timeframe to another or from one variable to another. The “short run” and “long run” can also predict future operations of the firm, especially when suffering the loss. This ability to presuppose or predict permits the firm the opportunity to strategize, prevent bankruptcy, recover losses, and closure