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. Economics

    A social science that studies how individuals, governments, firms ...
  2. Long Run

    A period of time in which all factors of production and costs ...
  3. Long-Run Average Total Cost - LRATC

    A business metric that represents the average cost per unit of ...
  4. Marginal Cost Of Production

    The change in total cost that comes from making or producing ...
  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 Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. How Influential Economists Changed Our ...
    Fundamental Analysis

    How Influential Economists Changed Our ...

  3. How Fannie Mae And Freddie Mac Were ...
    Economics

    How Fannie Mae And Freddie Mac Were ...

  4. The Economics Of Labor Mobility
    Economics

    The Economics Of Labor Mobility

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center