DIFFERENCE BETWEEN SHORT RUN AND LONG RUN

Another difference of the long run and short run is its flexibility. In long run production which all the
inputs of the firm are variable. It can operate then at various activity levels because the firm can change
and adjust fully all the factors of production and the level of output produced according to the business
environment or to the state of economy. So, the firm has the flexibility of switching between two scales.
On the other hand, in short run where the quantity of at least one input is fixed like for example the
firm’s capital inputs are assumed as fixed, and the production level can be changed only by changing the
quantity of other inputs such as labour, raw material, capital and so on. Therefore, it is quite difficult for
the firm to change the capital equipment, to increase the output produced, among all factors of
production.

The main difference between the short run and the long run is that the short run is a period during
which they fix the amount of at least one input while the quantities of the other inputs are variable. In
the short run, a firm can improve production by adding additional raw materials and labor, but not by
building a new factory. All inputs, including factory spaces, are fixed in the short run, implying that there
are no variable factors or restraints inhibiting growth in production output. While the long-run is a
period during which we can change all input quantities. It only implies that current firms are not bound
and can adjust the size and number of factories they own, whereas new firms can establish or buy
factories to produce more.

In the short run, because of the condensed duration, the general price level, contractual salaries, and
expectations do not always adjust. In the long run, the overall price level, earnings, and probabilities
react to the state of the economy.

In the short run, for example there is a sudden rise in demand that may lead to higher prices. Firms
don’t have the capacity to respond and increase supply. But in the long run where all main factors of
production are variable. The firm has the time to respond to changes in demand. Prices have time to
adjust that when there is a temporary surge in prices, supply will increase to meet it.

A short run is a period of time characterized by some fixed and variable factors. That in a sense, it is an
“adjustment period” because time and effort are limited. Since factors are stilted, a limited number of
factors like the amount of raw materials or the labor force can be changed or manipulated. Meanwhile,
in a long run it means that the factors are all varied and the “adjustment period” is over. Thus the
business can now initiate expansion activities or competition.
Another difference is the state of the industry in these two periods. In a short run, companies cannot
enter or exit an industry, while the long run period has more flexibility; companies shave excess to go in
or out depending on their development and progress.