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December 10, 2022 

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INFLATION PREMIUM: The difference between the nominal interest rate and the real interest rate. The role of the inflation premium is, quite simply, to adjust the interest rate for inflation. The nominal interest rate (the one on the loan contract) includes a real interest rate needed by the lender and a surcharge equal to the expected inflation rate used to maintain the purchasing power of the future payments. This expected inflation rate is the inflation premium.

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FIXED INPUT:

An input whose quantity cannot be changed in the time period under consideration. The relevant time period is usually termed the short run. The most common example of a fixed input is capital. The alternative to fixed input is variable input. A fixed input, such as capital, provides the "capacity" constraint for the short-run production of a firm. A variable input, such as labor, provides the means of changing short-run production. As larger quantities of a variable input are added to a fixed input, the variable input becomes less productive, which is the law of diminishing marginal returns.
A fixed input is a resource or factor of production which cannot be changed in the short run by a firm as it seeks to change the quantity of output produced. Most firms have several fixed inputs in short-run production, especially buildings, equipment, and land. However, in the analysis of short-run production, a great deal of insight is achieved by focusing on the fixed role of capital.

Short-Run Taco Production

As an illustration of fixed inputs, consider the short-run production of Shady Valley's favorite lunch time meal, Super Deluxe TexMex Gargantuan Tacos (with sour cream and jalapeno peppers). The key fixed input for Waldo Millbottom, the owner and proprietor of Waldo's TexMex Taco World, is the restaurant and accompanying capital equipment.

In the day-to-day production of TexMex Gargantuan Tacos, Waldo does not concern himself with the size of the restaurant, number of tables and chairs, amount of kitchen equipment, and available parking spaces. The quantities of these items are fixed in the short run.

In the short-run, Waldo is primarily interested in having a sufficient quantity of labor--waitpersons, kitchen help, etc. Waldo alters the quantity of labor to change the quantity of production.

Usually Capital, But Not Always

The designation of capital as a fixed input is not just an arbitrary choice made to ease the economic exposition of short-run production. Capital is usually an input that cannot be changed quickly. If a firm wants to add a half dozen additional machinists to its workforce, it can probably do so in a few weeks. However, if a firm wants to add 50,000 square feet of factory space, then the construction company probably needs a year or two to complete this job. In terms of short-run production, labor is typically variable and capital is typically fixed.

However, not all firms are typical. In some examples of short-run production, capital is the variable input and labor is the fixed input. One illustration is offered by the academic world of higher education. The labor of tenured faculty (with emphasis on "tenured") tends to be a fixed input in the production of education. By contrast, some forms of capital, especially computer equipment, are more easily changed and can be thought of as variable inputs in the production of education.

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Recommended Citation:

FIXED INPUT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: December 10, 2022].


Check Out These Related Terms...

     | production inputs | variable input | production time periods | short run | long run | market period | very long run | product | production function | total product | marginal product | average product | law of diminishing marginal returns | marginal returns |


Or For A Little Background...

     | short-run production analysis | production | production cost | variables | labor | capital | firm | business | economic analysis | marginal analysis | factors of production | microeconomics |


And For Further Study...

     | long-run production analysis | division of labor | production possibilities | ownership and control | production stages | total product and marginal product | average product and marginal product | total product and average product |


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