Figure 7-1 Total, Average, and Marginal Products in the Short Run

7.3 Production in the Short Run

Consider a company in Regina that produces specialty wooden
skateboards. The firm owns a small factory with the necessary machinery
and equipment—this is the firm’s stock of capital, and we will assume that
it is fixed in quantity. We call these the fixed factors of production. The
firm also purchases intermediate inputs, such as wood, glue, and
electricity, and, of course, hires workers. The intermediate inputs and the
labour services are the firm’s variable inputs.

In the following discussion, we will focus on the relationship between the
firm’s use of labour and the firm’s production of skateboards. In
particular, we want to know—with a fixed amount of capital—how output
changes as the firm increases or decreases its amount of labour. In other
words, we want to know about the firm’s production function. The table
in Figure 7-1 shows three different ways of looking at how output varies
with the quantity of labour services.

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