Production is the result of combined efforts of the factors of production. These factors may be fixed or variable. A fixed factor is one, whose quantity cannot readily be changed in response to desired changes in output or market conditions.
Its quantity remains the same, whether the level of output is more or less or zero. Buildings, land, machinery, plants and top management are some common examples of fixed factors. A variable factor, on the other hand, is one whose quantity may be changed in response to a change in output.
Raw materials, ordinary labour, power, fuel, etc. are examples of variable factors. Such factors are required more, when output is more; less, when output is less and zero, when output is nil. For the sake of analytical simplicity, semi-variable factors are not considered here.
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The distinction between fixed and variable factors is related to two periods the short-run and the long-run. The period of short-run is too short to cause variation in fixed factors. Thus, in the short-run, some factors are fixed, while the others are variable.
The production can be increased only by increasing the quantity of the variable factors or by having additional shifts or by increasing the hours of work. But, in the long-run (also called as planning period of the firm), all the factors are variable, i.e., the quantity of all the factors required can be varied to produce an output ranging from zero to an indefinite quantity.
All investment options are open including installation of new plant and machinery. In the long run, it is possible for a firm to branch out into new products or new areas or to modernise or reorganise its method of production through invention of new techniques.
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The distinction between fixed and variable factors helps us to study the law of variable proportions and the law of returns of scale. These laws of production show the relationship between the factors of production and output in the short-run and long-run respectively.