Faced with constantly changing conditions, why would a firm ever keep any factors fixed? What criteria determine whether a factor is fixed or variable?

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Vazquez

Business

28 January, 05:30

Faced with constantly changing conditions, why would a firm ever keep any factors fixed? What criteria determine whether a factor is fixed or variable?

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Miller · Answer 1

On the short run, most factors of production are fixed since both wages and prices are sticky, but on the long run, all the factors of production are variable. So firms cannot decide which factors to keep fixed or not, they simply are fixed or not.

A variable factor of production is one whose input level can change in the short run, e. g. a company can extend working hours from the regular 8 hours a day to 10 hours per day.

A fixed factor is one whose input level cannot be changed in the short run, e. g. it takes several months or even years to build a new production facility, lease contracts usually last 3-5 years.