Question

Difference between production in the short run and production in the long run:

1. What is the difference between the short-run and long-run? Is there a fixed time period associated with short-run and long-run? Explain why or why not.

2. What happens to output in the short-run as production increases? What inputs are "fixed" and which input is variable in the short-run? How does this explain diminishing marginal productivity?

3. What might happen to output in the long-run as the number of inputs is increased? Are there any fixed inputs in the long-run?

Answer 1

1) There is a major difference between the short run and long run productivity. Short run can be considered as a time period in which the firm find itself unable to change all the factors of production. While some factors can be changed which are called variable factors there are factors which are fixed in the short run and these are known as fixed factors. Variable factors include labour while fixed factor includes capital and machinery. In the long run all factors are variable because it gives a particular firm enough time to change all its factors.
There is no fixed time period that can be associated with the short run and long run because it depends upon firm to firm and situation to situation and also upon the type of factors used.
2) If we are increasing the variable factor in the short run then output can be increased by a lower value because there are some fixed factors which can not contribute in the production. Generally capital input such as plant and machinery are considered fixed and labour is considered variable in the short run. Because the same amount of capital and machinery is used by labour as more and more labour is employed the marginal productivity goes on falling. Initially marginal product may not fall largely but due to congestion and other problems there is a diminishing marginal productivity at Higher levels of output.
3) as the number of inputs are increased in the long run the output can be increased largely because now the form can adjust both the fixed and the variable factors so that there are no fixed factors in the long run.