This contrasts with the short-run, where some factors are variable (dependent on the quantity produced) and others are fixed (paid once), constraining entry or exit from an industry.
Marshall's original introduction of long-run and short-run economics reflected the 'long-period method' that was a common analysis used by classical political economists.
However, early in the 1930s, dissatisfaction with a variety of the conclusions of Marshall's original theory led to methods of analysis and introduction of equilibrium notions.
[3] Economic theory has employed the "long-period technique" of analysis to examine how production, distribution, and accumulation take place within a market economy ever since its first appearance in the writings of the 18th-century.
According to classical political economists like Adam Smith, the "natural" or "average" rates of salaries, profits, and rent tend to become more uniform as a result of competition.
Therefore, according to this specific approach, supply and demand changes only explain are indicative of the deviation that occur of "market" from "natural" prices.
All of these variables' "natural" or "equilibrium" values relied heavily on technological conditions of production and were consequently linked to the "attainment of a uniform rate of profits in the economy.
"[5] Since its origin, the "long period method" has been used to determine how production, distribution and accumulation take place within the economy.
[6][7] Here a firm may decide that it needs to produce on a larger scale by building a new plant or adding a production line.
[7] Once the decisions are made and implemented and production begins, the firm is operating in the short-run with fixed and variable inputs.
[7][9] Another part of the development of planning what a firm may decide if it needs to produce more on a larger scale or not is Keynes theory that the level of employment(labor), oscillates over an average or intermediate period, the equilibrium.
In the short-run, increases and decreases in variable factors are the only things that can affect the output produced by firms.
In the short-run, the variation in output, given the current level of personnel and equipment, determines the costs along with fixed factors that are unavoidable in the early stages of the firm.
It is an increasing function due to the law of diminishing returns, which explains that is it more costly (in terms of labour and equipment) to produce more output.
"Classic" contemporary graphical and formal treatments include those of Jacob Viner (1931),[15] John Hicks (1939),[16] and Paul Samuelson (1947).
John Maynard Keynes in 1936 emphasized fundamental factors of a market economy that might result in prolonged periods away from full-employment.
The price level is sticky or fixed in response to changes in aggregate demand or supply, capital is not fully mobile between sectors, and capital is not fully mobile across countries due to interest rate differences among countries and fixed exchange rates.