ECO204-Week_3_Discussion_1

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204

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Economics

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Feb 20, 2024

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Short-run has fixed inputs during a certain time period while long-run has no fixed inputs. According to Amacher & Pate, costs that will be the same regardless of how many units of output the firm produces (2019). One of the biggest differences is the time used to analyze all inputs. Also, the period of time that is too short to vary all the inputs; one or more of the inputs must remain fixed. In the short run, labor is generally the only variable factor of production" (Amacher & Pate, 2019). And the long run is "the period of time in which all inputs, including physical operations and equipment, can be varied"(Amacher & Pate, 2019). The things that will differentiate will be the labor, profit maximizing etc. in the short run and in the long run could look at maybe shutting down some of the ovens or cashiers for example. Fixed inputs are the productive resources that cannot be varied in the shortrun, such as the size of a hotel building. Variable inputs are the productive resources that canbe increased or decre ased in the short run (Amacher, 2019). For Sarah's bakery her fixed inputs would be her ovens and building if she owns it and has to maintain overhead costs, to include property taxes. Another variable input would be business insurance to cover liability due to injury or asset losses. The cost of ovens when she purchased them would be fixed, however, the amount she uses her ovens would be a variable input depending on the amount of business she has. Another variable might be her employees; if business is steady, she may have to convert her part-time employees to full time positions to keep up with the demands. If business slows, she may have to lay off employees to maintain a positive profit margin. The exempt administrative employee will be a fixed input, since this employee would not incur overtime and the pay would remain the same. It can also be noted that the hourly cost of these “fixed” employees ae typically higher than minimum wage, sometimes double. Because "more and more units of a variable input are added to a set of fixed inputs, the resulting additions to output will eventually become smaller" (Amacher & Pate, 2019). One example I like to use is if in my work center we have 4 employees working hard day in and day out but then we hire 4 more employees than those previous 4 will not work as hard, therefore they both would produce the same amount of work or less. "Profit will be maximized at the level of output at which marginal revenue equals marginal costs. For any output level when marginal revenue is greater than marginal cost, the firm adds to its total profit with each unit sold" (Amacher & Pate, 2019). I would hire more people but give my current workers a break if we could afford it or they can. Or you could put new one or two new employees with the workers that have been there and start working shifts, so everyone is being productive while learning their job.

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