Short Run

AAA

DEFINITION of 'Short Run'

In economics, it is the concept that within a certain period of time, in the future, at least one input is fixed while others are variable. The short run is not a definite period of time, but rather varies based on the length of the firm's contracts. For example, a firm may have entered into lease contracts which fix the amount of rent over the next month, year or several years. Or the firm may have wage contracts with certain workers which cannot be changed until the contract renewal.

INVESTOPEDIA EXPLAINS 'Short Run'

In the analysis of short run versus long run costs, it is important to understand the behavior of the firms. In certain situations, it may be preferable to keep operating an unprofitable firm over the short run if this helps to partially offset costs that are fixed. In the long run, however, an unprofitable firm will be able to terminate its leases and wage agreements and shut down operations.

RELATED TERMS
  1. Long Run

    A period of time in which all factors of production and costs ...
  2. Marginal Cost Of Production

    The change in total cost that comes from making or producing ...
  3. Economics

    A social science that studies how individuals, governments, firms ...
  4. Long-Run Average Total Cost - LRATC

    A business metric that represents the average cost per unit of ...
  5. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  6. Factor Market

    A marketplace for the services of a factor of production.
RELATED FAQS
  1. What is price variance in cost accounting?

    Price variance in cost accounting is the difference between the actual price paid by a company to purchase an item and its ... Read Full Answer >>
  2. What do you need to know to create a business model?

    A business model lays out the idea for a business, along with the step-by-step plan for making the business profitable. To ... Read Full Answer >>
  3. Do any markets not exhibit asymmetric information?

    Asymmetric information, when interpreted literally, means that two parties to an economic transaction have different information ... Read Full Answer >>
  4. What are the benefits of using ceteris paribus assumptions in economics?

    Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>
  5. What is the difference between marginal benefit and marginal revenue?

    Marginal benefit measures the consumer's benefit of consuming an additional unit of a good or service, while marginal revenue ... Read Full Answer >>
  6. What is the difference between marginal benefit and marginal cost?

    Marginal benefit is the incremental increase in a benefit to a consumer caused by the consumption of an additional unit of ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. 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.
  3. Economics

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.
  4. Personal Finance

    Can Electric Cars Replace Gas Guzzlers?

    High costs and poor battery performance have deterred many from switching to electric cars, which begs the question: can electric cars replace gas guzzlers?
  5. Economics

    Explaining Business Risk

    Business risk is the risk associated with the overall operations of a business entity.
  6. Fundamental Analysis

    How to Calculate a Combined Ratio

    Combined ratio is a formula used in the insurance industry to measure the performance of an insurance company.
  7. Economics

    Explaining Net Operating Profit After Tax

    Net operating profit after tax (NOPAT) describes a company’s potential cash earnings.
  8. Economics

    Would More Government Debt Help The U.S. Economy?

    Many economic policy experts are once again asking: “What, if anything, can be done to accelerate the United States’ persistently soft recovery?”
  9. Economics

    Explaining Marginal Propensity to Consume

    The marginal propensity to consume is a measure of how much consumption changes when income changes.
  10. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center