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VARIABLE FACTOR OF PRODUCTION: An input whose quantity can be changed in the time period under consideration. This usually goes by the shorter term fixed input and should be immediately compared and contrasted with fixed factor of production, which goes by the shorter term fixed input. The most common example of a variable factor of production is labor. A variable factor of production provides the extra inputs that a firm needs to expand short-run production. In contrast, a fixed factor of production, like capital, provides the capacity constraint in production. As larger quantities of a variable factor of production, like labor, are added to a fixed factor of production like capital, the variable factor of production becomes less productive.

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Lesson 22: Factor Supply | Unit 3: Factor Supply Page: 15 of 25

Topic: Factor Cost Times Three <=PAGE BACK | PAGE NEXT=>

  • A set of useful concepts in the analysis of factor markets:

  • Total factor cost is the opportunity cost incurred when using a given factor of production to produce a good or service.
  • Total factor cost is used as the starting point for calculating the other two related measures:

  • Average factor cost is the total factor cost per unit of factor input, found by dividing total factor cost by the quantity of factor input.
  • The third factor cost concept is marginal factor cost.

  • Marginal factor cost is the change in total factor cost resulting from a change in the quantity of factor input, found by dividing the change in total factor cost by the change in quantity of factor input.
  • Marginal factor cost indicates how a firm's total factor cost is affected by hiring one more or one fewer factor.

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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.

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