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LONG RUN, MICROECONOMICS:

In terms of the microeconomic analysis of production and supply, a period of time in which all inputs under the control of a firm used in the production process are variable. In the long run, labor and capital are variable inputs. The long-run analysis of production reveals the key role played by returns to scale. This is one of four production time periods used in the study of microeconomics. The other three are short run, very long run, and very short run (or market period). The long run is also a time period designation used in the macroeconomic analysis of economic growth and full employment.
In microeconomic analysis, the long run is concerned with the adjustment of factory or plant size and is often termed the planning period. In the long run, a firm is able to change the quantities of ALL resource inputs--labor, capital, land, and entrepreneurship. Nothing under the control of the firm is fixed. If the current factory is too small, then a larger one can be built--in the long run. If the existing retail store has excess space, then a smaller building can be acquired--in the long run.

Returns to Scale

The guiding principle in the microeconomic analysis of the long run is returns to scale. This concept indicates how production changes relative to equal proportional changes in all inputs. A doubling of all inputs might, for example, also lead to an exact doubling of production. Or production might increase by more or less than an exact doubling.

This suggests three alternative returns to scale:

  • Constant Returns to Scale: This results in the long run if a proportional increase in all inputs under the control a firm leads to an equal proportional increase in production. That is, a ten percent increase in labor, capital, land, and entrepreneurship also generates a ten percent increase in production.

  • Increasing Returns to Scale: This results in the long run if a proportional increase in all inputs under the control a firm leads to a greater than proportional increase in production. That is, a ten percent increase in labor, capital, land, and entrepreneurship generates more than a ten percent increase in production.

  • Decreasing Returns to Scale: This results in the long run if a proportional increase in all inputs under the control a firm leads to a less than proportional increase in production. That is, a ten percent increase in labor, capital, land, and entrepreneurship generates less than a ten percent increase in production.

A Word or Two About the Short Run

The short run is a period in which at least one input is variable and at least one input is fixed. The long run takes over for the short run only when any and all of the fixed inputs become variable. From a practical standpoint, the short run means that the size of the factory or production plant cannot be changed.

With a fixed input, such as factory size, a firm changes production ONLY by changing a variable input such as labor. The fixed input, however, creates a capacity constraint. The variable input can be used to increase production, but only to an extent. Eventually the capacity of the fixed input is reached. That is, so many workers are crammed into a factory, that total production can increase no more.

The guiding short-run principle reflected in this notion is the law of diminishing marginal returns. This law states that as a variable input is added to a fixed input, eventually the marginal product (or marginal returns) of the variable input declines.

The Start of the Long Run

A key question that arises is this: "Exactly how long before the long run begins?" The key answer to this key question is: "It depends." There is no definitive calender-style designation for the start of the long run. The long run might begin after one month, or six months, or two years, or a decade. When the long run begins depends on the particular production under analysis.

For some types of production the long run could begin in as short as a few days or weeks. For other production it might not start for a decade or more. The long run begins when the quantity of the fixed input changes.

A couple of examples might serve to illustrate:

  • Consider the newspaper route tended by precocious twelve-year-old Penelope Pumpernickel. In the short run, her key variable input is her own labor and her most important fixed input is her shiny purple bicycle. In the short run, Penelope can deliver more newspapers by spending more time doing the delivery deed. In the short run, her shiny purple bicycle constrains how many papers she can delivery.

    However, in the long run precocious Penelope can change her fixed shiny purple bicycle input. Perhaps she can add a second bike to her newspaper delivery production enterprise to be used by her precious younger sister Priscilla. Perhaps she can expand her capital with a moped, a motorcycle, or a brand new OmniMotors LTD DXL 5000 Delivery Van.

    How long might it take Penelope to acquire this extra capital and move from the short run to the long run? Perhaps a day or two if purchased off the floor from a retailer or a month or so if it is manufactured from scratch. In this case, the short run lasts about a month.


  • Another example is provided by Mona Mallard's Duct Tape factory. This 3 million square foot factory makes use of the latest automated, high-tech duct tape manufacturing equipment, with key parts fabricated out of quagliminium, a rare metal found only in the barren mountains of the Republic of Northwest Queoldiolia. It takes a minimum of five years to extract and process quagliminium into a usable form.

    How long would it take to expand the productive capital of Mona Mallard's Duct Tape factory? Given the time constraints for quagliminium processing, Mona Mallard can count on at least five years. Should Mona decide to expand duct tape production by adding another 300,000 square feet of factory space and associated equipment today, she will not see any extra output for at least five years. In this case, the short run is at least five years.

All Runs Together

The distinction between short run and long run is usually employed primarily for analytical convenience. In particular, the economic analysis of short-run production is best accomplished by specifying one variable input and one fixed input. In so doing, a great deal of insight can be gained.

However in the real world, firms are generally less concerned about theoretical distinctions between the short run and the long run. The reason is that most firms operate in the short run and long run (as well as the very short run and very long run) simultaneously. In other words, a firm is concerned about the day-to-day business of adding variable inputs to fixed inputs, at the same time it is making and implementing plans to change the fixed inputs.

For example, Penelope Pumpernickel continues to deliver newspapers each morning, then spends her afternoons shopping for a new bicycle. During construction of their new 300,000 factory addition, the Mona Mallard continues to produce rolls upon rolls of duct tape in their existing factory.

<= LONG-RUN MARGINAL COSTLONG-RUN PRODUCTION ANALYSIS =>


Recommended Citation:

LONG RUN, MICROECONOMICS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: July 17, 2018].


Check Out These Related Terms...

     | production time periods | short run, microeconomics | very short run, microeconomics | very long run, microeconomics | production inputs | fixed input | variable input |


Or For A Little Background...

     | production | production cost | variables | labor | capital | law of supply | economic analysis | marginal analysis | factors of production | microeconomics | market | price | quantity supplied |


And For Further Study...

     | short-run production analysis | long-run production analysis | production function | product | total product | marginal product | average product | law of diminishing marginal returns | marginal returns | production stages | division of labor | production possibilities | long run, macroeconomics |


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