Production and costs
This chapter defines that what is the short and long run for a firm's production process; in the short run the firm has at least one fixed input of production, whereas in the long run all inputs can be adjusted if the firm wishes to. It analyses the relationship between a firm's inputs and its outputs–that is, its production function–and how this relationship can change over time. The chapter examines how a firm's output is related to its costs in the short run and in the long run. It considers how a firm's profit is calculated. A firm, using the available technology, converts inputs–labour, machines and natural resources–into output that is sold in the marketplace. The chapter discusses total costs refers to the economic costs that a firm incurs for producing output. A horizontal long-run average total cost curve indicates that there are constant average costs.