Today's Question
In economics, the 'short run' means at least one input is FIXED (can't be changed), while the 'long run' means ALL inputs are variable. A restaurant with a 5-year lease has fixed rent in the short run. Why are a firm's costs typically higher in the short run than in the long run for producing the same output?
Model Answer
In the short run, firms are 'stuck' with some inputs and must work around constraints. If demand suddenly doubles, a restaurant with a fixed-size kitchen must hire more workers (who crowd the kitchen) rather than expand. In the long run, they can get a bigger kitchen, better equipment, or relocate - choosing the most efficient combination. Flexibility reduces costs.