What distinguishes a firms short run period from its long ru

What distinguishes a firm\'s short run period from its long run priod? Briefly explain.

Solution

A firm\'s short-run period is distinguished from its long-run period in the sense that short-run period is characterized by the presence of two categories of factors - Fixed factors and Variable factors. In this period, only variable factors changes with change in output while fixed factors remain constant. On the other hand, in long-run period, there are no fixed factors and all factors are considered variable. In this period, all factors changes with change in output.

If firm is unable to change some factors of production as it changes its output consideration, it is said to be operating in short-run and if firm is able to change all its factors of production as it change its output consideration, it is said to be operating in long-run.