Write short notes on short run cost and long run cost.

Write short notes on short run cost and long run cost.

Ans. Short-run Costs – Short-run costs are costs that vary with output when fixed plant and capital equipment remain the same. Short-run costs become relevant when a firm has to decide whether or not to produce more in the immediate future. In this case, setting up a new plant is ruled out and the

firm has to manage with the given plant. Long-run Costs – Long-run costs are costs which vary with output when all input factors including plant and equipment vary. Long-run costs become relevant when the firm has to decide whether to setup a new plant. Long-run costs can help the businessman in planning the best scale of plant, or the best size of the firm for his purposes. Hence, long-run costs can be helpful both in the initiation of new enterprises as well as the expansion of existing one.

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