Understanding Production - Report Sample

Introduction

In production long run is the period when factors of production and costs are variables and firms can adjust costs while in the short run firms can only influence price by adjustments made to production levels. The distinction between short run and long run is very significant when it comes to economics. As it stands the description of the two terms is dependent or whether or not they are applied in the contexts of macro and micro-economics. Economically, the long run is an idea that is theoretical and in which all markets are at their equilibrium.

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Long Run

To be specific, the long run does not have any factors of productions which are fixed when it comes to microeconomics although there is adequate time for modification, in a way, there is no restriction that prevents the change of the level of output altering the capital stock or through entry or exit of an industry. This is different from the short run that there are given factors that vary- depending on the quality of production and the remaining are fixed (payable ones) hence constricting the getting into or leaving the industry (Darell, 2002). Economically, the long run is simply the period in time when the standard level of prices, salaries that are contracted, and the expectations are entirely in line with the economic state, whereas in the short run, these variables do not adjust fully. In economics, there is no time framework given to refer to the long run and the short strategies of production. Relatively, they are time periods that are theoretical, the core distinction is how flexible one can be and the choices that have to be taken in a particular situation.

The long run is described as the point in time when the producer is required to be flexible when it comes to all the decisions of the means of production. Several commercials make distinct decisions, for instance the number of employees to take in a given time, the scale of production as well as the process of production to put in place. This, therefore, means that the long run comprises not only of the decisions of changing the labor capacity of an industry but as well as the scale of production done by the industry moving up and down depending on demand. In disparity, economists describe the short run as the point in time when the operation scale is fixed such that the only decision that an enterprise can make is the labour capacity needed at the time that is how many more worker to be employed or sacked. In very minimal instances, though, the short-run could as well signify a situation in which the amount of capital varies.

Laws of Labor

The concept as always been in even putting into consideration given laws of labor, hiring and firing is usually simple and can to that ends change the process of production or change the factory or office of operation. One of the reasons why this happens is because it has to do leases that are long run and such. Ultimately, in respect to the decision-making during production, long run and short run can be substantiate as short run as is when the processes of production are fixed and labor quantity changes whereas long run is when the quantity of capital and well as the methods of production vary.

The definition of the long run is at times given as the point in time when there are no sunk-on costs which are fixed. Moreover, fixed costs are defined as costs that do not change with the changes in the quantity of production. To add onto that, sunk costs refer to the ones that cannot be recovered after being paid. For instance, a lease to the headquarters of cooperatives would be an example of a sunk cost in case the organization signs a lease of the space of the office. Moreover, it is a fixed cost as well because upon the decision on the scale of operation it is not as if all the additional units produced. A number of plantation companies need many years to expand whereas; a salon may only need a week to expand. The salon owner will only need a week to adjust and grow. This changes on output and input alters the long run.

Increasing, Decreasing, and Constant

In any case the production in an industry alters all inputs proportionally, the resultant variation in production with guided returns to scale, come in three dimensions. One, there can be a proportional increase in production to that of inputs. Two, there could be more production compared to the rise in inputs and lastly the rise of production may be less compared to the inputs. The three changes are known as constant returns to scale, decreasing returns to scale and increasing returns to scale.

Constant Returns to Scale – this takes place whenever there is a relative increase in puts hence resulting to the same increase in production. that is to say that a 15% rise in labor capital and other inputs as well leads to a similar 15% rise in the rate of production.

Increasing Returns to Scale – this takes place in case all the inputs below the firm’s control is higher compared to production. That is to say, a 15% rise in capital, labor results into an increase in production rates by 15%. Decreasing Returns to Scale – this takes place if a relative rise in all inputs in the firm lead to less relative rise in production. for instance, a 15% rise in capital and labor plus other inputs lead to a rise in the rate of production that is less than 15%.

In the analysis of a long run production returns on scale may lead to a positive law of supply relation between quantity and price. Thus, after sometime, the law of diminishing returns shows that a greater cost of production and therefore an increase in price leading to heightened production – showing the law of supply.

Although, in the long run, as the scale returns can either increase, decrease or remain constant the cost of production can as well therefore also decrease, increase or remain constant and that further means that the price can as well decrease, increase or remain constant. And due to that, there can never be any time where the law of supply is proportional to the higher price and the larger quantity on hold.

Scale Cost Alternatives

The analysis of long run production gives the basis of knowing long run cost. Particularly, increasing or decreasing returns to scale are under two significant ideas of long run cost. That is diseconomies of scale and economies of scale (Hillebrandt, 2000). Economies of scale take place when the industry is experiencing a drop in the long run average cost because of a corresponding rise in the inputs. Economies of scale lead to increase in the scale returns. In case there is an increase in inputs then the average of production will go down.

Diseconomies of scale on the other hand take place whenever the industry is experiencing a rise in long run average cost because of relative rise in the inputs. Diseconomies of scale can lead to the reduction of the returns of scale. In case, there is a rise in production less than the rise in inputs, then there is increase in average production.

Conclusion

From the discussions above, short run production and long run production have distinct pros and cons. The short run is more time than not a period where one or more factors of production is chosen and done in line with the short run. Such productions are better for perishable products as well as products that are used on a daily basis such as house hold items. Long run production on the other hand takes a longer time and is more suitable for items that can be used after a long while without going bad. Although, the amount of production can always be altered by changing different inputs for instance energy, raw materials and labor.

Reference

Derrell, R. J. (2002). Long and short run relationships between industrial and developing countries. https://www.elibrary.ru/item.asp?id=5337477

Hillebrandt, P. M. (2000). Economic Theory and the Construction Industry. Basingstoke: Palgrave Macmillan. https://link.springer.com/book/10.1057%2F9780230372481.