Long Run and Short Run Decisions

In a firm, there are two economic decisions that take place.  They are the long run and short run decisions.  

Long Run 

Long run (LR) is a period of time that is long enough for the firm to change all factors of production.

Long run decisions are not easily reversed.

Long run decisions involve ONLY variable factors.

An example of a long run decisions is  the KLIA (Kuala Lumpur International Airport) to expand its terminal and build KLIA 2. 

http://www.klia2.info/ 



(Digital image of KLIA 2)

As KLIA is a big firm in the airline business in Malaysia, the building of KLIA 2 to increase the amount of planes and customers. It is measures at 257 000 square meters, with 60 gates, 8 remote stands, and 80 aerobridges. It is designed to cater 45 million passengers a year. KLIA 2 is built at a cost of about RM 4 billion.

The construction of KLIA 2 is a long term decision as the terminal is to be used for a long time and after it is built, it cannot be easily undone. This will help in KLIA revenue as they can cater to more passengers than before.

Short Run 

Short run (SR) is a period of time over which one or more factors of production are fixed. 

Short run decisions are easily changed.

Short run decisions involved fixed cost AND variable cost. 

An example of short run decisions is when if KLIA decides to add a 100 new workers to an aircraft.

This is considered to be a short run decision as the crew has to paid a fixed amount of salary which is part of cost of production for KLIA.

Written by : Samuel Goh U-Wei