Have you ever found yourself ambiguously using the phrase “in the long run” or “in the short term” without giving much thought to exactly how long either are?
Interestingly enough, Managerial Economics provides definitions for both “short run” and “long run” and although they are in reference to specific economic calculations I thought it was interesting even when you think of it terms of day to day life.
Short run: Is defined as the time frame in which there are fixed factors of production. To illustrate, suppose capital (money) and labor are the only two inputs in production and that the level of capital is fixed in the short term (e.g you have a fixed budget and don’t have any further money to invest in extra production machinery). In this case the only short-run input decision to be made by the manager is how much labor to utilise to produce the desired outcome.
Long run: is defined as the horizon over which the manager can adjust ALL factors of production. If it takes the company three years to acquire additional capital (money) to purchase more machines (labour), the long run for its management is three years and the short run is less than three years.
So for the purpose of managerial economics, short run is the time frame in which there is one variable that is fixed and you can still make decisions regarding the other variable.
Long term is the time it will take to adjust ALL FACTORS regarding your decisions.
Therefore in life, “in the short run” is the period of time you are dealing with where you don’t have control over ALL the aspects however you can make a decision regarding ONE or more factors that can determine outcome.
“In the long run” therefore is the time it takes until you can adjust ALL FACTORS that determine the outcome.
Pretty sure there is some life-lesson in there to be learnt. Thanks economics.