The Short Run and Long Run Cost

In examining a firm’s costs, two different time horizons are considered the short-run and the long-run periods of production.

The Short Run:

This is a planning period so short that the firm does not have to vary quantities of certain factors such as building, heavy machinery, top management posts, land, etc. Thus, some factors within this period are said to be fixed. Other resources such as raw materials, labour, etc. are allowed to vary according to the level of output, these are variable resources.