Fixed Factors
Fixed factors are those which remain unchanged as out output of the firm changes in the shout-run. In other words as a firm increases or decreases its output in the short run, fixed factors remain constant. They are independent of output in the short run. Machines, factory buildings, plants, permanent employees etc. are examples of fixed factors. Constructing a new plant or expanding the existing one for changing the output of the firm will take time. It is not possible in the short run.
Variable Factors
Variable factors are those factor inputs which change with the change of output in the short run. Raw materials, labour, fuel, power etc. are examples of variable factors. If a firm wants to expand output in the short run, then it can employ more labourers, purchase more raw materials and can use more power. Similarly, if it wants to contract output, then it can retrench workers, purchase less raw materials and fuel etc. This shows that as production increases, variable factors also increase and as production falls the quantities of variable factors also fall.
It is important to note the distinction between fixed factors and variable factors. So important in the short-run vanishes in the long run. In the long run, all factors are variable.
The distinction between Fixed and Variable Factors
Comments