Wednesday, June 17, 2015

Firm Technology

Firm:
Firm is a technical unit in which commodities are produced and entrepreneur transforms inputs into outputs, subject to technical rules specified by his production function.
Input:
Any goods or services which contributes to the production of an output is called input.
Resources such as people, raw materials, energy, information, or finance that are put into a system (such as an economy, manufacturing plant, computer system) to obtain a desired output.  
There are 2 types of input.
i) Fixed
ii) Variable

FIXED INPUT: An input in the production of goods and services that does not change in the short run. A fixed input should be compared with a variable input, an input that DOES change in the short run. Fixed and variable inputs are most important for the analysis of short-run production by a firm. The best example of a fixed input is the factory, building, equipment, or other capital used in production.

VARIABLE INPUT: An input whose quantity can be changed in the time period under consideration. This should be immediately compared and contrasted with fixed input. The most common example of a variable input is labor. A variable input provides the extra inputs that a firm needs to expand short-run production.

Fixed cost is not absolute fixed. At certain time or after reaching certain size, a fixed cost may become variable.

Output:
The product we get using the input is known as output.
The short-run relation between a variable input and output is of particular interest because it reveals the law of diminishing marginal returns. This law indicates that additional quantities of a variable input, when added to a fixed input, have decreasing marginal products, or marginal returns.

Source:
1. http://www.amosweb.com/cgi-bin/awb_nav.pl?s=gls&c=dsp&k=fixed+input
2.

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