What are Short run and long run costs?

The explanation of the difference between the short run and long run is quite simple.
  1. In the short run at least one of the factors of production are fixed.
  2. In the long run all of the factors of production are variable.
Remember that the fators of production are 
  1. Land
  2. Labour
  3. Capital
  4. ​Enterprise
The diagram shows y axis as costs and x axis as output. There is a long run average total costs surve that slopes from left to right highlighiting economies of scale. There are three short run average total costs, each of these mores right and downward form the previous.
Diagram showing the curve for long run costs and three short run cost curves
The diagram shows the long run average total cost curve with a number of smaller short run average cost curves.

If we take a sandwich shop as an example.  In the short run the sandwich shop has just one shop and therefore land is fixed.  The owner of the sandwich shop can increase the other factors e.g. adding more workers (labour) or fridges (capital).

Whilst ever the owner sticks with one shop the short run costs are represented by SRATC1.  As output increases the firm experiences increasing marginal returns (downward slope) and then diminishing marginal returns as the SRATC curve slopes upwards. 

​Once diminsihing marginal returns occur the owner is incetivised to open a second shop.
When the owner opens the second outlet the SRATC shifts right. In the short run land becomes fixed again however the firm has moved along the LRATC and benefitted from economies of scale.  Further expansion of opening a third shop would cause another shift right and down of the SRATC.