Tuesday, October 28, 2008

What are the differences between long-run and short-run decison making?

Long run and short run decision making is very different. In the short-run firms make decisions based on the fact that they cannot change inputs, whereas in the long run, inputs can vary. For example, I am going to brew beer. In the short-run, I need to have all of the necessary equipment and resources to produce beer. I cannot change these inputs because beer cannot be brewed without them. In the long-run, I can vary the inputs. If I start to brew a Bavarian Lager, I may decide to add a wheat beer to my repertoire. I also may decide to alter the look of my labels and bottles. Additionally I may decide to use revenue and invest in better technology for pasteurizing my brews. All of these can vary as I continue to produce and sell beer. 

No comments: