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. Marginal Rate of Technical Substitution

    The rate at which one factor has to be decreased in order to ...
  6. Absolute Advantage

    The ability of a country, individual, company or region to produce ...
RELATED FAQS
  1. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  2. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
  3. How do fixed and variable costs each affect the marginal cost of production?

    The total cost of a business is comprised of fixed costs and variable costs. Fixed costs and variable costs affect the marginal ... Read Full Answer >>
  4. What are some examples of the law of demand in real markets?

    The law of demand posits a negative relationship between the price of a good and quantity demanded if all other factors are ... Read Full Answer >>
  5. How does the balance of trade impact currency exchange rates?

    The balance of trade influences currency exchange rates through its effect on the supply and demand for foreign exchange. ... Read Full Answer >>
  6. What is the difference between direct costs and variable costs?

    Direct costs and variable costs are expenses associated with production. Direct costs are expenses that can be directly traced ... 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

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  3. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  4. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  5. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.
  6. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  7. Economics

    Explaining Working Capital Turnover

    Working capital turnover is a ratio that helps show how efficiently a company is generating revenue per dollar of cash available to spend on operations.
  8. Economics

    What are Consumer Packaged Goods?

    Consumer packaged goods, CPGs, are items that consumers use and purchase often.
  9. Economics

    What is Market Failure?

    Market failure happens when economic conditions cause a market to be unable to reach supply/demand market equilibrium.
  10. Economics

    What is a Moral Hazard?

    The risk that a party to a transaction has not entered into the contract in good faith, or has provided misleading information.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center