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:
“What do we want with this vast and worthless area, of this region of savages and wild beasts, of deserts, of shifting sands and whirlwinds, of dust, of cactus and prairie dogs; to what use could we ever hope to put these great deserts, or those endless mountain ranges, impenetrable and covered to their very base with eternal snow? What can we ever hope to do with the western coast, a coast of 3,000 miles, rockbound, cheerless, uninviting and not a harbor in it?”
—For the State of Kansas, U.S. public relief program (1935-1943)
“Just as modern mass production requires the standardization of commodities, so the social process requires standardization of man, and this standardization is called equality.”
—Erich Fromm (1900–1980)
“The information links are like nerves that pervade and help to animate the human organism. The sensors and monitors are analogous to the human senses that put us in touch with the world. Data bases correspond to memory; the information processors perform the function of human reasoning and comprehension. Once the postmodern infrastructure is reasonably integrated, it will greatly exceed human intelligence in reach, acuity, capacity, and precision.”
—Albert Borgman, U.S. educator, author. Crossing the Postmodern Divide, ch. 4, University of Chicago Press (1992)