BE/U3 Topic 3 Fixed and Variable 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 the examples of fixed factors. To construct a new plant or expand the existing one for changing the output of the firm will take time. It is not possible in the short-run.
Variable factors are those factor inputs which change with the change with the change of output in the short run. Raw materials, labour, fuel, power etc. are the 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 of 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 that the distinction between the fixed factors and variable factors. So important in the short-run vanishes in the long-run. In the long-run all factors are variable.
Distinction between Fixed and Variable Factors
|1. Fixed factors exist only in the short-run.
2. It is independent of output in the short-run.
3. Plant, machines etc. are the examples of fixed.
4. It exists even in the zero level of output.
|1. Variable factors exist both in the short-run and long-run.
2. It changes with the change of output in the short-run
3. Labour, raw materials etc. are the examples of variable factors.
4. When output is zero, quantities of variable factors are reduced to zero.