Short Run & Long Run Cost Video Lecture | Business Economics for CA Foundation

this is the first of section 1.5 in the
microeconomics high-level IB syllabus
and in this video I will explain the
difference between the long run and the
short run in the context of production
and costs so we know that firms take the
4 factors of production which are land
labor capital and enterprise and they
combine these factors of production to
produce goods and services so the
factors of production are the inputs and
the goods and services are the output
now it would make more sense that in
order to increase production the
solution is to add more factors of
production however this is not always
possible it might be because the factors
of production take time in order to find
or to employ it might be that the firm
can't afford the cost of employing extra
factors of production or it might be the
availability may be the factors of
production whether it's land or labour
or capital maybe they're just not
available so it's not always possible to
add factors of production when you want
to increase production and this is where
we have the distinction of the short-run
versus the long-run so in the context of
production the short run is the period
of time in which at least one factor of
production is fixed one of your factors
of production whether it's land capital
labor or enterprise is fixed you cannot
increase that in order to increase
production now all production takes
place in the short-run and because of
this in the short-run we have fixed
costs as well as variable costs the
long-run on the other hand this is the
period of time in which all factors of
production are variable you can actually
change all of your factors of production
all planning within a business takes
place in a long-run and because of the
fact that all factors of production are
variable in the long-run
in the long run all costs are also
variable so the short run at least one
factor of production is fixed all
production takes place in the short run
and you have fixed costs as well as
variable costs in the long run all
factors are variable all planning takes
place in the long run and in the long
run all costs are also variable so a
question I get asked a lot in class is
how long is the short run what is the
length of the short run well it varies
from one industry to another if for
example there is an industry for example
a baker for a baker to increase the
number of ovens that they have in their
bakery this might take a couple of weeks
or a month at the most but for a nuclear
power plant a plant that produces
electricity from nuclear energy it might
take years to install new nuclear
generators for example so the short run
will differ from one industry to another
depending on how long it will take for
all factors of production to be variable
or to be changed another question I get
asked a lot in class is well how long
does the long run last for so once your
fixed factors are changed are you in the
long run forever well no actually
because once you change all of your
fixed factors you just enter into a new
short run so the long run is really a
series of short runs think of the long
run there's one short run after another
and this is why I said earlier firms
plan in the long run all of their
planning is always in the long run but
they produce the actual act of producing
always happens in the short run because
in the short run you will always have at
least one factor of production that is
fixed