Short-run

(metallurgy) Pertaining to a mold or casting filled only partially with molten metal.

A period of time in which the quantity of some inputs cannot be increased beyond the fixed amount that is available.

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For example,what quantity of inventory to order is a short run decision. Whether or not to build a new factory would be considered a long run decision.

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A period of time long enough for existing firms in an industry to increase production in reaction to changing economic conditions, but not long enough to allow them to increase capacity or for new firms to enter the industry.

Decisions usually involving idle capacity, a time period of one year or less during which certain factors of production are fixed and cannot be changed. See also Nonroutine Decisions; Special-Order Decisions.

In economics, the concept of the short-run refers to the decision-making time frame of a firm in which at least one factor of production is fixed. Costs which are fixed in the short-run have no impact on a firms decisions. For example a firm can raise output by increasing the amount of labour through overtime.

A generic firm can make three changes in the short-run:

• Increase production
• Decrease production
• Shut down

In the short-run, a profit maximizing firm will:

• Increase production if marginal cost is less than price;
• Decrease production if marginal cost is greater than price;
• Continue producing if average variable cost is less than price, even if average total cost is greater than price;
• Shut down if average variable cost is greater than price. Thus, the average variable cost is the largest loss a firm can incur in the short-run.

See also

• Long-run

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