Short and Long Run

Before we delve into each specific curve, we need to understand the concept of the short-run and the long-run.

The short run refers to a time when at least one factor of production is fixed; firms can adjust production by varying the usage of variable inputs (such as labor and raw materials) but not fixed inputs (such as machinery or number of factories). Short-term economic fluctuations can lead to temporary imbalances in the economy, such as cyclical unemployment or inflationary pressures, as markets respond to changing conditions as reflected in the business cycle.

The long run refers to a period of time during which all factors of production are variable and can be adjusted to their optimal levels. The economy operates at its potential output level, as resources are neither underutilized or overutilized, but are rather fully utilized.