October 23, 2016 

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ADB: An abbreviation that stands for either the African Development Bank the Asian Development Bank. The African Development Bank is a regional multilateral development institution engaged in promoting the economic development and social progress of its member countries in Africa. The Bank, established in 1964, started functioning in 1966 with its Headquarters in Abidjan, Cote d' lvoire. The Bank borrows funds from the international money and capital markets. Its shareholders are the 53 countries in Africa as well as 24 countries in the Americas, Europe, and Asia. The Asian Development Bank is a multilateral development finance institution dedicated to reducing poverty in Asia and the Pacific that engages in mostly public sector lending for development purposes in its developing member countries. They pursue this goal by helping to improve the quality of people's lives providing loans and technical assistance for a broad range of development activities. ADB raises fund through bond issues on the world's capital markets but they also rely on members' contributions. The ADB was established in 1966 and has its headquarters in Manila, Philippines. As of September of 2003, the ADB had 58 member countries.

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In terms of the microeconomic analysis of production and supply, a period of time in which at least one input under the control of a firm used in the production process is variable and at least one input is fixed. In the short run, the variable input is usually labor and the fixed input is capital. The short-run analysis of production reveals the law of diminishing marginal returns and provides an understanding of the upward-sloping supply curve and the law of supply. This is one of four production time periods used in the study of microeconomics. The other three are long run, very long run, and very short run (or market period). The short run is also a time period designation used in the macroeconomic analysis of business cycles.
In microeconomic analysis, the short run includes the day-to-day production decisions faced by most firms as they combine labor and other variable inputs with a factory, production facility, or other capital. In the short run, firms adjust variable (labor) inputs, given existing fixed (capital) inputs, as the means of changing production in response to market prices.

The Law of Diminishing Marginal Returns

The guiding principle in the microeconomic analysis of the short run is the law of diminishing marginal returns. This law states that as more of a variable input is added to a given fixed input, then eventually the marginal returns (or marginal product) of the variable input declines. In other words, each extra variable input is increasingly LESS productive.

This law is reflected in a declining marginal product of the variable input as well as an increasing marginal cost incurred in the production of the output. Because the productivity of the variable input declines, more is needed to generate a given increment in production. This means the cost of producing more output, marginal cost, increases with the quantity produced. As cost increases, so too does price. The direct correspondence between higher price and larger quantity is the essence of the law of supply.

A Word or Two About the Long Run

The short run gives way to the long run when any and all of the fixed inputs under the control of the firm become variable. From a practical standpoint, this means the size of the factory or production plant can be changed.

Because none of the inputs under control of a firm are fixed in the long run, the law of diminishing marginal returns does not apply. Instead, production in the long run is guided by returns to scale, which reflects how production changes in response to proportional changes in all inputs, especially labor and capital.

The End of the Short Run

A key question that arises is this: "Exactly how long does this short run last?" The key answer to this key question is: "It depends." There is no definitive calender-style designation for the short run. The short run does not necessarily last one month, or six months, or two years before giving way to the long run. Rather, the short run depends on the particular production under analysis.

For some types of production the short run can last as short as a few days or weeks. For other production it can last as long as a decade or more. The short run can last as long as it takes to expand the fixed input.

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 the bicycle is 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 less than 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 such 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.


Recommended Citation:

SHORT RUN, MICROECONOMICS, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2016. [Accessed: October 23, 2016].

Check Out These Related Terms...

     | production time periods | long 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 | short run, macroeconomics |

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