JC1 H2 economics — Introduction to Firms and Economic Costs + 6 more topics

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When we talk about the short run in economics, it's a period where at least one factor of production is fixed (e.g., factory size, machinery), while others are variable (e.g., labour, raw materials). This distinction is critical because it directly affects how a firm can increase its output and, consequently, its costs.

In the long run, there are no fixed factors of production. This means a firm can adjust its plant size, technology, and all other inputs. This flexibility is key to understanding how costs behave when output levels change significantly.

When we talk about economies and diseconomies of scale, we usually think about what happens when a single firm expands. But external economies and diseconomies are different: they refer to cost changes that affect all firms in an industry due to the growth or decline of the entire industry.

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