Production functions: short and long run

PRODUCTION FUNCTION:

The relationship between the quantity of inputs a

firm uses and the quantity of output it produces.

SHORT RUN:

Firms can vary labor (not in a fixed contract) and raw materials.

In the short run managers can send workers home, fire workers or shut down the plant.

LONG RUN:

Firms can vary everything. Most importantly land, the physical plant and capital within the space.

In the long run, a firm can sell a plant and change its fixed costs.

ECONOMIC vs. ACCOUNTING PROFIT: