9781118041581

A PRODUCTION FUNCTION FOR AUTO PARTS Consider a multiproduct firm

that supplies parts to several U.S. automobile manufacturers. Table 5.1 tabu-

lates the firm’s production function for one such specialty part. The table lists

the quantities of output that can be produced using different combinations of

two inputs, labor and capital. For instance, the first entry indicates that an out-

put of 93 specialty parts per day can be produced employing 10 workers in a

10,000-square-foot plant.

PRODUCTION WITH ONE VARIABLE INPUT

Short-Run and Long-Run Production

Our analysis of production and cost makes an important distinction between

the short run and the long run.

In the short runone or more of the firm’s inputs is fixed; that is, they can-

not be varied. In the long runthe firm can vary allof its inputs. There is no uni-

versal rule for distinguishing between the short and long run; rather, the

dividing line must be drawn on a case-by-case basis. For a petrochemical refin-

ery, the short run might be any period less than five years since it takes roughly

this long to build a new refinery. For a fast-food chain, six months (the time it

takes to obtain zoning approvals and construct new restaurants) may be the

dividing line between the short and long run.

Inputs that cannot be changed in the short run are called fixed inputs. A

firm’s production facility is a typical example. In the long run, the firm could

192 Chapter 5 Production

TABLE 5.1

A Production Function

for a Specialty Part

This production

function shows the

quantity of output

that can be obtained

from various

combinations of plant

size and labor.

Number of Plant Size (Thousands of Square Feet)

Workers 10 20 30 40

10 93 120 145 165

20 135 190 235 264

30 180 255 300 337

40 230 315 365 410

50 263 360 425 460

60 293 395 478 510

70 321 430 520 555

80 346 460 552 600

90 368 485 580 645

100 388 508 605 680

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