Short period analysis - theory of production, Microeconomics

SHORT PERIOD ANALYSIS:

Short period in production refers to a time when some inputs remain fixed. A fixed input is one, whose quantity cannot be changed readily, whereas, a variable input varies with production. Inputs like land, building and major pieces of machinery cannot be varied easily and, therefore, can be called fixed inputs. On the other hand, inputs like labour (labour hours), raw materials, and processed materials can be easily increased or decreased. Therefore, these are categorised as variable inputs. Depending on whether inputs can be kept fixed or not, we have a short period or a long period. To put this more precisely, if inputs being used in the production process have just enough time such that they cannot be varied, then the analysis pertains to the short-run. On the other hand, if the inputs employed have enough time such that they are amenable to variation, then the analysis is based on the frame work of long-run. Generally, the firms do not readily change their capital, which could be land, machinery, managerial and technical  personnel. Therefore, these are fixed input in the short-run. When we treat these under Κ, the production function can be written as

1955_SHORT PERIOD ANALYSIS -.png

where L = Labour, a variable factor  

K = Capital, a fixed factor  

 

Posted Date: 10/26/2012 6:03:26 AM | Location : United States







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