Long Run

AAA

DEFINITION of 'Long Run'

A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels. Additionally, whereas firms may be a monopoly in the short-term they may expect competition in the long-term.


In economics, long-run models may shift away from short-turn equilibriums, in which supply and demand react to price levels with more flexibility.

INVESTOPEDIA EXPLAINS 'Long Run'

Firms examining the long run understand that they cannot alter levels of production in order to reach an equilibrium between supply and demand. In the long run, they can either expand or reduce production capacity or enter or exit an industry based on expected profits. In the short run, barriers to entry prevent competitors from quickly entering a market. In the long run, however, competitors may enter or exit an industry depending on the levels of profit previously seen by companies operating in that industry.

RELATED TERMS
  1. Marginal Cost Of Production

    The change in total cost that comes from making or producing ...
  2. Long-Run Average Total Cost - LRATC

    A business metric that represents the average cost per unit of ...
  3. Short Run

    In economics, it is the concept that within a certain period ...
  4. Long Term

    Holding an asset for an extended period of time. Depending on ...
  5. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
  6. Kenney Rule

    A ratio of an insurance company’s unearned premiums to its policyholders’ ...
RELATED FAQS
  1. How does fiscal policy impact the budget deficit?

    Fiscal policy refers to any uses of the government budget to affect the economy. This includes government spending and levied ... Read Full Answer >>
  2. What is the concept of utility in microeconomics?

    Utility is a loose and controversial topic in microeconomics. Generally speaking, utility refers to the degree of removed ... Read Full Answer >>
  3. How does a lack of demand affect financial markets?

    A lack of demand affects financial markets by leading to lower prices. The function of financial markets is to constantly ... Read Full Answer >>
  4. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  5. How can a company control its holding costs?

    A company can control its holding costs through efficient management of its inventory and the efficiency of its overall logistics ... Read Full Answer >>
  6. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
Related Articles
  1. Investing Basics

    How To Make A Winning Long-Term Stock Pick

    Discover the key elements of a good long-term investment and how to find them.
  2. Investing Basics

    Finding Solid Buy-And-Hold Stocks

    Find out how to look at the big picture - even when the market's short-term outlook is less than rosy.
  3. Investing Basics

    Long-Term Investing: Hot Or Not?

    Forget the latest craze - you're more likely to succeed with a buy-and-hold strategy.
  4. Forex Education

    Forex: Finding Your Trading Style

    Determine your own trading style, and the versatile currency market will accommodate it.
  5. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  6. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  7. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  8. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.
  9. Economics

    Gaining Market Influence-- The Case of US Shale

    A convergence of sustained bank financing, falling production costs and rising oil prices might position the US shale industry for a greater market role.
  10. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center