WEW-060

Microeconomics Question from Walter E. Williams:

"The distinction between the long run and the short run is a fiction with no counterpart in the real world." Evaluate this criticism, explaining why one might make the statements, but show how this fictional distinction might be defended.

Answer

The definition of short run is the longest period of time during which at least one of the inputs used in a production process cannot be varied. The long run is the shortest period of time required to alter the amounts of all inputs used in a production process. Having defined the short run and the long run, it is fairly easy to see that there is not a clear demarcation between the time when some inputs are fixed and all are variable. There is nothing magical about the one-year mark, a traditional marker between short and long run. A good way to internalize the difference between short and long run is to look at the difference between labor and capital. Labor is easily varied through the hiring and firing process. Small capital acquisitions are also easily made on a day to day basis; however, large capital acquisitions take time and would not be considered variable in the short run. There is a distinction between short and long run, but it is a gray area that changes for each firm and economic agent.

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