Short-run and Long-run Costs

Short-run and Long-run Costs

Short-run and long-run cost concepts are related to variable and fixed costs, respectively, and often appear in economic analysis interchangeably. Short-run costs are those costs, which change with the variation in output, the size of the firm remaining the same. In other words, short-run costs are the same as variable costs. Long-run costs, on the other hand, are the costs, which are incurred on the fixed assets like plant, building, machinery, etc. Such costs have long-run implication in the sense that these are not used up in the single batch of production.

Long-run costs are, by implication, same as fixed costs. In the long-run, however, even the fixed costs become variable costs as the size of the firm or scale of production increases. Broadly speaking, the short-run costs are those associated with variables in the utilisation of fixed plant or other facilities whereas long-run costs are associated with the changes in the size and type of plant.