Definition
The “Long Run” in economics is a period of time sufficient for all factors in a production process or industry to adjust fully to changing economic conditions. It enables firms to modify all aspects of production, such as capital, labor, and technology, and allows for industry-wide changes like firms entering or exiting the market. Unlike the short run, where some factors of production are fixed, the long run is characterized by flexible and adjustable production factors.
Examples
Example 1: Manufacturing Industry
In the manufacturing industry, the long run allows a car manufacturer to build new factories, invest in robots for the assembly line, and retrain workers with new skills. This period surpasses the short run where the manufacturer is limited to temporary solutions like overtime shifts or minor adjustments in existing workflows.
Example 2: Technology Sector
For a tech company, the long run would be the phase where the company invests in new research and development (R&D), upgrades its technology infrastructure, or even shifts its business model to adapt to new market trends. The company has the freedom to enter new markets or exit declining ones entirely.
Example 3: Agriculture
In agriculture, a farmer has the long-run ability to change crop types, invest in new irrigation systems, or expand their land. This is unlike the short run, where adjustments might be limited to changing fertilization techniques or hiring seasonal labor.
Frequently Asked Questions
What distinguishes the long run from the short run in economics?
The key difference is that, in the short run, some factors of production are fixed (like capital), while in the long run, all factors can be adjusted.
How is the long run important for decision-making in businesses?
The long run is crucial as it allows businesses to plan and implement strategic changes that affect their productivity, expansion, and competitive positioning.
Does the long run have a specific duration?
No, the long run does not have a specific time duration. It varies from industry to industry, depending on the nature of the business and the changes being implemented.
Can companies prepare for long-run changes in the short run?
Companies can start planning and implementing steps towards long-run changes in the short run. However, complete adjustments and realignments typically occur over an extended period.
How does the long run affect market competition?
The long run affects market competition by allowing new firms to enter the market and existing firms to expand or exit. This fluidity ensures market efficiency and innovation over time.
Related Terms
Short Run
A period during which at least one factor of production is fixed. Businesses can only make limited adjustments to factors such as labor or raw materials.
Economies of Scale
A proportionate saving in costs gained by an increased level of production. In the long run, firms can benefit from economies of scale as they expand.
Capital
In economics, capital refers to all human-made resources employed in the production process, such as machinery, buildings, and vehicles. In the long run, firms can alter their capital significantly.
Market Equilibrium
A condition in a market where supply equals demand over the long run. Adjustments by firms in response to price changes ensure that equilibrium is maintained.
Barriers to Entry
Obstacles that make it difficult for new firms to enter an industry. In the long run, these barriers can be lowered, removed, or altered by changing economic variables.
Online References
Suggested Books for Further Studies
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“Microeconomics” by Robert Pindyck and Daniel Rubinfeld Provides a comprehensive overview of microeconomics, including detailed sections on long-run adjustments.
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“Principles of Economics” by N. Gregory Mankiw Sheds light on fundamental economic principles, with explanatory chapters on short-run and long-run economics.
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“Intermediate Microeconomics: A Modern Approach” by Hal R. Varian Offers in-depth analysis on different economic time frames and their implications for production and supply.
Fundamentals of Long Run: Economics Basics Quiz
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