Question

how a fixed factor's price effect the variable factor and the profit in short run?

Answer 1

Solution:

Fixed factor's price effect the variable factor and the profit in short run:

Fixed costs (FC) are incurred independent of the quality of goods or services produced. They include inputs (capital) that cannot be adjusted in the short term, such as buildings and machinery. Fixed costs (also referred to as overhead costs) tend to be time related costs, including salaries or monthly rental fees. An example of a fixed cost would be the cost of renting a warehouse for a specific lease period. However, fixed costs are not permanent. They are only fixed in relation to the quantity of production for a certain time period. In the long run, the cost of all inputs is variable.

In Microeconomics, various factors like size of the production facility or other capital intensive means of production may not be easily expanded in short run due to legal, regulatory, capital or other reasons. So, a firm facing a higher demand for its good is unable to significantly expand production in a short run due to such fixed factors.