Shifting A Production Function
By definition, in the long run the firm can change its scale of operations by adjusting the level of inputs that are fixed in the short run, thereby shifting the production function upward as plotted against the variable input. If fixed inputs are lumpy, adjustments to the scale of operations may be more significant than what is required to merely balance production capacity with demand. For example, you may only need to increase production by a million units per year to keep up with demand, but the production equipment upgrades that are available may involve increasing productive capacity by 2 million units per year.
If a firm is operating at a profit-maximizing level in stage one, it might, in the long run, choose to reduce its scale of operations (by selling capital equipment). By reducing the amount of fixed capital inputs, the production function will shift down. The beginning of stage 2 shifts from B1 to B2. The (unchanged) profit-maximizing output level will now be in stage 2.
Read more about this topic: Production Function
Famous quotes containing the words shifting, production and/or function:
“How strange a scene is this in which we are such shifting figures, pictures, shadows. The mystery of our existence—I have no faith in any attempted explanation of it. It is all a dark, unfathomed profound.”
—Rutherford Birchard Hayes (1822–1893)
“... if the production of any commodity necessitates the sacrifice of human life, society should do without that commodity, but it can not do without that life.”
—Emma Goldman (1869–1940)
“Advocating the mere tolerance of difference between women is the grossest reformism. It is a total denial of the creative function of difference in our lives. Difference must be not merely tolerated, but seen as a fund of necessary polarities between which our creativity can spark like a dialectic.”
—Audre Lorde (1934–1992)