Managerial Economics and Strategy, 2/e

5.2 Short-Run Production

The short run is a period in which at least one input is fixed. Focusing on a production process in which capital and labor are the only inputs, we assume that capital is the fixed input and labor is variable. The firm can therefore increase output only by increasing the amount of labor it uses. In the short run, the firm’s production function, Equation 5.1, becomes

$$q=f\left(L,\overline{K}\right),$$ (5.2)

where q is output, L is the amount of labor, and $\overline{K}$ [&*obar*{K}&] is the firm’s fixed amount of capital.

To illustrate the short-run production process, we consider a firm that assembles computers for a manufacturing firm that supplies it with the necessary parts, such as computer chips and disk drives. If the assembly ...