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Revision as of 01:19, 27 November 2006 by Kingturtle (talk | contribs) (disamb)(diff) ← Previous revision | Latest revision (diff) | Newer revision → (diff)- For other uses of the term, see The Long Run
In economic models, the long run time frame assumes no fixed factors of production. Firms can enter or leave the marketplace, and the cost (and availability) of land, labor, raw materials, and capital goods can be assumed to vary. In contrast, in the short run time frame, certain factors are assumed to be fixed, because there is not sufficient time for them to change. This is related to the long run average cost (LRAC) curve, an important factor in microeconomic models.
Long run marginal cost (LRMC) refers to the cost of providing an additional unit of service or commodity under assumption that this requires investment in capacity expansion. LRMC pricing is appropriate for best resource allocation, but may lead to a mismatch between operating costs and revenues.
In macroeconomic models, the long run assumes full factor mobility between economic sectors, and often assumes full capital mobility between nations.
The concept of long run cost is used in cost-volume-profit analysis and product mix analysis.
A famous use of the phrase was by John Maynard Keynes, who said in dry humor, "In the long run, we are all dead."
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