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In the short run, production function at least one of the 's (inputs) is fixed. In the long run, all factor inputs are variable at the discretion of management. Moysan and Senouci (2016) provide an analytical formula for all 2-input, neoclassical production functions. [4]
Assuming that factor prices are constant, the production function determines all cost functions. [4] The variable cost curve is the constant price of the variable input times the inverted short-run production function or total product curve, and its behavior and properties are determined by the production function.
In the short run, production can be varied only by changing the variable input. Thus only variable costs change as output increases: ∆C = ∆VC = ∆(wL). Marginal cost is ∆(Lw)/∆Q. Now, ∆L/∆Q is the reciprocal of the marginal product of labor (∆Q/∆L).
The principal difference between short run and long run profit maximization is that in the long run the quantities of all inputs, including physical capital, are choice variables, while in the short run the amount of capital is predetermined by past investment decisions. In either case, there are inputs of labor and raw materials.
Wire-grid Cobb–Douglas production surface with isoquants A two-input Cobb–Douglas production function with isoquants. In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and ...
In the short run, the production function assumes there is at least one fixed factor input. The production function relates the quantity of factor inputs used by a business to the amount of output that result. There are three measure of production and productivity. The first one is total output (total product).
The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium. More specifically, in microeconomics there are no fixed factors of production in the long-run, and there is enough time for adjustment so that there are no constraints preventing changing the output level by changing the ...
In economics, average variable cost (AVC) is a firm's variable costs (VC; labour, electricity, etc.) divided by the quantity of output produced (Q): =. Average variable cost plus average fixed cost equals average total cost (ATC): + =.