Long Run Production With Variable Inputs:
The long run is the lengthy
period of time during with all inputs can be varied. There are
no fixed output in the long run. All factors of
production are variable inputs.
We now analyze production function
by allowing two factors say labor and capital to very while all
others are held constant. With both factors are variable, a firm
can produce a given level of output by using more labor and less
capital or a greater amount of capital and less labor or
moderate amounts of both. A firm continues to substitute one
input for another while continuing to produce the same level of
output.
If two inputs say labor and capital
are allowed to vary, the resulting production function can be
illustrated in the figure 12(a).
Diagram/Figure:
.JPG)
In this figure each curve (called an
isoquant) represents a different level of output. The
curves which lie higher and to the right represent greater
output levels than curves which are lower and to the left.
For example, point D
represents a higher output level of 250 units than point A or B
which shows output level of 150 units.
The curve isoquant which represents
150 units of output illustrate that the same level of output
(150 units) can be produced with different combinations of labor
and capital. Combination of labor and capital represented by A,
can employ OL1 quantity of labor and OC1
units of capital to produce 150 units of output.
The combination
of labor and capital represented by point B will use only OL2
units of labor and OC1 of capital to produce the same
level of output. Thus, if a country has surplus labor and less
capital, it may use the combination of labor and capital
represented by point A. In case the country has abundant capital
and less labor, it might produce at point B. The isoquants
through points A and B shows all the different combinations of
labor and capita that can be used to produce 150 units of
output.
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