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Give reasons for the following statements: (i)Variable factor proportions obtain in the short run. (ii) Fixed factor proportions obtain in the long run. |
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Answer» Solution :(i) Short run is a period of time in which some factors are variable, and at least one factor is fixed. The level of output in a firm can be INCREASED only by increasing the quantity of variable factors. The quantity of fixed input remains unchanged at different levels. Therefore, when variable factors are increased, whereas the quantity of fixed factor remains unchanged, the proportions between variable factors and fixed factors get changed. These are KNOWN as variable factor proportions. (ii) In the long run all the factors BECOME variable because we can change both the factors of production, that is why fixed factor ALSO becomes variable. Therefore, when the scale of production of a firm is increased, quantity of all the factors is increased in a given PROPORTION. These are known as fixed factor proportions. |
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