SHORT VS LONG RUN PRODUCTION FUNCTION

Short-Run Vs Long-Run Production Function
The production function of a firm can be studied in the context of short period or long period. It is to be noted that in economic analysis, the distinction between short-run and long-run is not related to any particular measurement of time (e.g. days, months, or years). In fact, it refers to the extent to which a firm can vary the amounts of the inputs in the production process. A period will be considered short-run period if the amount of at least one of the inputs used remains unchanged during that period. Thus, short-run production function shows the maximum amount of a good or service that can be produced by a set of inputs, assuming that the amount of at least one of the inputs used remains unchanged. Generally, it has been observed that during the short period or in the short run, a firm cannot install a new capital equipment to increase production. It implies that capital is a fixed factor in the short run. Thus, in the short-run, the production function is studied by holding the quantities of capital fixed, while varying the amount of other factors (labour, raw material etc.) This is done when the law of variable proportion is studied.

The production function can also be studied in the long run. The long run is a period of time (or planning horizon) in which all factors of production are variable. It is a time period when the firm will be able to install new machines and capital equipments apart from increasing the variable factors of production. A long- run production function shows the maximum quantity of a good or service that can be produced by a set of inputs, assuming that the firm is free to vary the amount of all the inputs being used. The behaviour of production when all factors are varied is the subject matter of the law of returns to scale.

Goods and Service Tax Book (Updated upto 20th January 2018)

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Intermediate and CA final. 

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Author Name- CA Harshita Raichandani and CA Dhananjay Ojha

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GST (Goods and Services Tax) Book -A student friendly Book. - Bharat Gurukul

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Inte