3.2.3 Predicting Supply
Completion requirements
When suppliers have plenty of time to adjust to price changes, there is a long run cost analysis.
In a long run analysis, sellers can change the productive capacity in response to prices. They can hire more staff, order more raw materials, build new facilities, or purchase more equipment, for example.
No resources are fixed.
In a long run analysis, sellers can change the productive capacity in response to prices. They can hire more staff, order more raw materials, build new facilities, or purchase more equipment, for example.
No resources are fixed.
If sellers are not sure how long an item will sell at a particular price, a short run cost analysis
may be appropriate.
In a short run analysis, the only way sellers can increase output is to use the presently available resources more intensively (the plant, staff, raw materials, and equipment, for example). Employers could pay employees overtime wages and run two shifts a day in their present facilities instead of one shift.
At least one resource is fixed.
In a short run analysis, the only way sellers can increase output is to use the presently available resources more intensively (the plant, staff, raw materials, and equipment, for example). Employers could pay employees overtime wages and run two shifts a day in their present facilities instead of one shift.
At least one resource is fixed.
For durable goods such as cars, buyers are less affected by short run price changes. Buyers can postpone the replacement of their durable goods until the price comes down. However, in long run price changes, consumer goods wear out. Buyers cannot postpone replacement indefinitely.