Short and Long Production Run
What is a production run?
The firm has to alter the number of its resources (inputs or factors of production) in order to meet changing market conditions such as increased demand for its products. The period of time in which it can change its inputs is the production run. There are two major types of production run, namely short run and long run.
The short run is a production run in which a firm cannot vary all its factors of production (inputs) in order to change its output. It must keep at least one factor /input constant while having the liberty to vary the other factors. Let us assume that labour (workforce) is the factor to be varied in the short run while capital (machine, equipment or factory) is kept unchanged. A business can increase its labour and allow capital to remain the same in response to increased demand. The factor of production that changes as output is altered is a variable factor; the factor that is unchanged regardless of the amount of output is a fixed factor.
The long run is a period of time in which a firm can alter all its factors due to changing market conditions. Therefore, all factors, including capital, are variable in the long run as no factor is fixed. Production run is not determined by a specific number of years or months; it is industry-specific, that is to say it can be a few weeks in one industry or a few years in another.
Why different production run?
The business incurs some costs in using more resources which are rent for land, interest for capital, profit for enterprise, wage or salary for labour. Though nobody has the crystal ball, businesses have to make gradual improvements to resources as the emerging conditions in the market may be short-lived. This will minimise costs or prevent losses in case the demand returns to the previous level. Capital is usually expensive to acquire and as such the business must take time to ascertain whether the change will be permanent or temporary. So capital is fixed in the short run. Adjustment is made to labour by hiring more workers (permanent/ temporary) or get existing workers to work overtime in order to boost production in the short run. If the new market condition persists for a few weeks, months or years, depending on the type of business, the firm can employ more of all factors of production. Capital investment can be made because the growing demand may continue in the future.
Moreover, it is easier to acquire some factors than others. The construction of a new production facility will require more time than employing additional workers. In some manufacturing industries, such as the power industry, it takes a few years to install necessary machines and keep them operational. Therefore, long run could be five years or more. The long run may be a few months required to get additional production facility up and running.
Do not forget the very long-run!
Economists sometimes talk about the very long run. This is the period of time in which technology changes. Technological innovation is fast-paced in some industries while it is slow in others.