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SHORT-RUN PRODUCTION ALTERNATIVES: A firm faces three production options in the short run based on a comparison between price, average total cost, and average variable cost. If price is greater than average total cost, a firm earns an economic profit by producing the quantity that equates marginal revenue with marginal cost. If price is less than average total cost but greater than average variable cost, a firm incurs an economic loss, but produces the quantity that equates marginal revenue with marginal cost. If price is less than average variable cost, a firm shuts down production in the short run, incurring an economic loss equal to total fixed cost.
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                           VARIABLE INPUT: An input whose quantity can be changed in the time period under consideration. The most common example of a variable input is labor. Variable inputs provide the means used by a firm to control short-run production. The alternative to variable input is fixed input. A fixed input, like capital, provides the capacity constraint in production. As larger quantities of a variable input, like labor, are added to a fixed input like capital, the variable input becomes less productive, which is the law of diminishing marginal returns. A variable input is a resource or factor of production which can be changed in the short run by a firm as it seeks to change the quantity of output produced. Most firms use several variable inputs in short-run production, especially labor, material inputs, and energy. However, in the analysis of short-run production, a great deal of insight is achieved by focusing on the variable use of labor.Short-Run Taco ProductionAs an illustration of variable 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 variable input for Waldo Millbottom, the owner and proprietor of Waldo's TexMex Taco World, is the staff of workers.In the day-to-day production of TexMex Gargantuan Tacos, Waldo is primarily interested in having a sufficient quantity of labor--waitpersons, kitchen help, buspersons, cashier, greeting host, chef, maitre d', valet parking attendants, and floor show performers. To alter the production of TexMex Gargantuan Tacos, Waldo changes the size of his workforce. However, Waldo does not concern himself with the size of the restaurant, number of tables and chairs, amount of kitchen equipment, and available parking spaces. These are fixed inputs. Usually Labor, But Not AlwaysThe designation of labor as a variable input is not just an arbitrary choice made to ease the economic exposition of short-run production. Labor is usually an input that can 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 for many firms, 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.
Recommended Citation:VARIABLE INPUT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: September 15, 2019].
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