Question

explain what a fixed input is and give an example of fixed inputs that a restaurant would have. how are the fixed inputs treated in the short run ? and in tge long run ? why is the law of diminishing marginal returns applicable only in the short run?

answer with your own word ( 200 words )

Answer 1

A fixed input is a resource of production which cannot be altered in the short run by any firm as it seeks to change the quantity of output produced by any firm. Most firms have many fixed inputs in their short-run production, especially infrastructures, machinery, land .

for example a restaurant will have piece of land on which his restaurant is built as fixed in short run, similarly the big equipments that he uses would be fixed in the short run. so both of these will count as fixed input factors.

an input factor is constant in short run. it cannot be changed. suppose a factory is built on X units of land, the land cannot change in the short run. thus it is a fixed input factor.

but in the long run the fixed input factor is not fixed. everything can be altered in the long run. no input factor is fixed in the long run. as we do not know anything about the input factors in the long run, they are treated as an unknown. new machinery may be built up, new lands may be available, new buildings might come up, new technology may show up, thus no input factor is fixed in the long run.

law of diminishing marginal returns is an economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output. this is only applicable in the short run as it clearly states that it is applicable when one input in the production of a commodity is increased while all other inputs are held fixed, which is possible only in the short run. in the long run we do not have control or say over the quantity of any input factor.