Short Run

Published Oct 26, 2023

Definition of Short Run

The short run refers to a period of time in economics during which certain factors of production are fixed, while others can be varied. In the short run, businesses are unable to change their physical capital (e.g., buildings and machinery) and often their level of technology. However, they have some flexibility to adjust their labor and other variable inputs.

Example

To better understand the concept of the short run, let’s consider the production of a bakery. The bakery has a fixed amount of capital, which includes its ovens, mixing machines, and its physical store. In the short run, the bakery cannot easily change or expand its physical capital. However, it can vary its labor inputs by adjusting the number of workers it employs.

For instance, if the bakery experiences an increase in demand for its products, it can hire additional workers to increase production. On the other hand, if demand decreases, it may lay off some workers to adjust to the lower demand. However, the bakery cannot quickly change the size of its physical store or add new equipment.

Why the Short Run Matters

The concept of the short run is essential for understanding business decision-making and the flexibility that firms have in adjusting their variable inputs to changes in market conditions. Additionally, it helps economists analyze the relationship between inputs and outputs and study the effects of changes in fixed and variable inputs on production and costs. By studying the short run, businesses can make more informed decisions and plan for the future based on their current capabilities and constraints.