Short-Run And Long-Run Costs - SS2 Economics Lesson Note

Short-run and long-run costs are concepts used in economics to analyze production costs over different time horizons. 

• Short-run costs: The short run refers to a period of time in which a firm cannot change all of its production inputs, such as its capital equipment and facilities. In the short run, a firm's costs are classified into two types: fixed costs and variable costs. Fixed costs are expenses that do not change with the level of production, such as rent or salaries, while variable costs are expenses that do change with the level of production, such as raw materials and labor.

• Long-run costs: Long run refers to a period of time in which a firm can change all of its production inputs. In the long run, a firm's costs are classified into three types: fixed costs, variable costs, and total costs. Fixed costs are still expenses that do not change with the level of production, while variable costs are still expenses that do vary with the level of production. Total costs, however, refer to all of a firm's expenses, including both fixed and variable costs.