Question

1. Define the concept of short run and Long run (6%). Then, use your own example to illustrate the difference between short-run and long-run production operation. (10%)

Answer 1

Ans.

Factor of production is based on 2 types.

1. Variable Factor, where the output can be varied by quantity
2. Fixed Factor , where all the factor remain constant and stays the same

Short Run

in short run, tates that at a specific point of the future ,where atleast one input of production has to be fixed and others will be variable. Example - Land will be the fixed factor an the labor will be the variable factor.

Long Run

In the long run, states that at a specific point of the future , where each and every input of production are variable. Example- Here both the land and labor will be the variable factor.

Example -

Lets take an example of Rugby Ball company and theres an increase demand for rugby ball .

In short run, To meet the increase demand they will increase labor supply and get more raw materials to make more rugby ball and they can't change the number of factories to make the production as it will be the fixed factor. So business will be limiting themselves in this and new firms will not be able to join the market, because only the existing companies will be able to meet the demand.

In long run, each factors are variable so they can maximise production and buy more factories if they needed to meet the demand and also in the long run new firms will like to enter the rugby ball market.

Suppose the Production function of the Rugby Company : -

Q = 2X + 2Y

in short run the X which is Land and Y which is Labor, where X will be 1 as the land value will stay the same'

In short run -

Q = 2 + 2Y

Land	Labor	QTY
1	1	4
1	2	6
1	3	8
1	4	10

In Short Run X value will change as al factors are variable.

Q = 2X + 2Y

Land	Labor	QTY
1	1	4
2	2	8
3	3	12
4	4	16

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