The inputs or resources used in the production process are called factors of production by economists. The myriad of possible inputs are usually grouped into five categories. These factors are:
- Raw material
- Machinery
- Labour services
- Capital goods
- Land
In the “long run”, all of these factors of production can be adjusted by management. The “short run”, however, is defined as a period in which at least one of the factors of production is fixed.
A fixed factor of production is one whose quantity cannot readily be changed. Examples include major pieces of equipment, suitable factory space, and key managerial personnel.
A variable factor of production is one whose usage rate can be changed easily. Examples include electrical power consumption, transportation services, and most raw material inputs. In the short run, a firm’s “scale of operations” determines the maximum number of outputs that can be produced. In the long run, there are no scale limitations.
Read more about this topic: Production Theory
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