The long runĪ firm enters its long run when it increases its scale of operations.
Therefore, in the short run at least one factor of production is fixed. In the short run firms do not use extra fixed factors, such moving to new premises, to increase output. The short runĪ firm is said to be in its short run when it can increase its output by using more variable factors, such as by hiring more workers, but not by increasing its fixed factors. The fundamental principles of production relate closely to the time periods in question, of which there are four: The very short runĪ firm is said to be in its very short run when the only way to increase output is by using up existing stocks of inputs. Typical variable factors include labour, energy, and raw materials directly used in production. Variable factors are those that do change with output, which means more are employed when production increases, and less when production decreases.
Fixed factor inputsįixed factors are those that do not change as output is increased or decreased, and typically include premises such as its offices and factories, and capital equipment such as machinery and computer systems. In order to produce goods and services which can be sold, and generate revenue and profits, a firm must purchase or hire scarce inputs, which are its factors of production.
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