Question

How long is the short run?

The specific factor model is a short-run model because two of the actors were specific to the two goods which would be true in the short run. In contrast, the Heckscher - Ohlin model is a long-run model because both factors of production are mobile which would be true in the long run. But we never discussed how long is the short run? (We only said that the short run is the period of time for which the specific factor is immobile.) In this thread, you will be asked to consider How long is the short run?

In this Discussion Board thread, we want to consider the difference between the short-run and the long-run. Please give two specific examples of a factor of production that is fixed in the short run. (I do not want Labor in industry X.) Since the “short run” is not well defined, we want to consider two different short runs.

• First example:
  • Identify a factor of production that is fixed for about a year. In this case, we say the short run is about 1 year.
  • What industry is this factor used in?
  • Why is the factor fixed for about a year? Why is it able to move after about a year?
• Second example:
  • Identify a second factor of production that is fixed for 3 or more years. So, we say the short run is 3 or more years.
  • What industry is this factor used in?
  • Why is the factor fixed for about 3 or more years? Why is it able to move after 3 or more years?

Answer 1

Factor of production are those which are used in process of conversion of inputs into finished goods.

There are four factors of production :

Land

Labour

Capital

Entrepreneurship

Firste example: *Capital is the factor of production which is fixed for a year.. Capital of a company remain fixed for one year because one year is too short period to increase capital of company if an entrepreneur want to expand its output he may increase its workers .

* Although all industries need capital to run but capital intensive industries need more capital . Capital intensive industries are those that requires large amount of capital expenditure . Examples: automobile industries, transport industries etc.

* This factor (capital) is fixed for one year because one year is too short period to expand capital of industry . It starts increasing in long run because in long run entrepreneur expand industry's scale of operation.

Second example: * Capital equipments such as machinery, computer systems etc. remain fixed for 3years or more.

*Manufacturing industries,oil refining industries , mining industries use more of these factor.

* This factor remain fixed for 3 years or more because they require large amount of capital investment. It is able to move after 3years due to change in technology and fashion .