What is ‘Fixed Input’ in production theory?
A factor of production is treated as a fixed input if it cannot easily be changed instantaneously or over the time period under consideration. Examples can be land or factories
What is ‘Variable Input’ in production theory?
A variable input is one which can be varied over the time period under consideration. Examples can be labor.
What do we understand by ‘short run’?
‘Short Run’ refers to the period of time over which one or more factor(s) of production can not be changed. In case of short run, only one input to the production process can be varied. Therefore, if the firm wishes to vary its production in the short run, it can do so only by changing the quantity of labour with a fixed quantity of capital. This requires changing the proportions in which labour and capital are combined in the production process.
What do we understand by ‘long run’?
The long run refers to the amount of time needed to make all production factors variable. The long run also permits factor substitution. More capital and less labour or more labour and less capital can be used to produce a fixed amount of output. Long run firms can vary the amounts of all their inputs to minimize the cost of production.
What do we mean by Fixed proportions production and variable proportion production?
Fixed proportions production means there is one and only one ratio of inputs that can be used to produce a good. If output is expanded or contracted, all inputs must be expanded or contracted so as to maintain the fixed input ratio. An example can be of using a computer for completing a particular project. It takes one person at a time to use the computer. Neither two people and one computer or one person and two computers will increase production.
Variable proportions production implies that output can be changed in the short run by changing the amount of variable inputs used in co-operation with the fixed inputs. As the amount of one input is changed, the other remaining constant, the ratio of input changes. Secondly, when production is subjected to variable proportions, the same output can be produced by various combinations of inputs i.e. by different input ratios. This may apply only to the long run, but it is relevant to the short run when there is more than one variable input.