Long Run Production With Variable Inputs

The Long Run Production is the lengthy period of time during with all inputs can be varied. There is no fixed output in the long run. All factors of production are variable inputs.

We now analyze production function by allowing two factors say labor and capital to vary while all others are held constant. With both factors are variable, a firm can produce a given level of output by using more labor and less capital or a greater amount of capital and less labor or moderate amounts of both. A firm continues to substitute one input for another while continuing to produce the same level of output.

If two inputs say labor and capital are allowed to vary, the resulting production function can be illustrated in figure 12(a).

In this figure, each curve (called an isoquant) represents a different level of output. The curves which lie higher and to the right represent greater output levels than curves which are lower and to the left.

For example, point D represents a higher output level of 250 units than point A or B which shows output level of 150 units.

The curve isoquant which represents 150 units of output illustrates that the same level of output (150 units) can be produced with different combinations of labor and capital. Combination of labor and capital represented by A can employ an OL1 quantity of labor and OC1 units of capital to produce 150 units of output.

The combination of labor and capital represented by point B will use only OL2 units of labor and OC1 of capital to produce the same level of output. Thus, if a country has surplus labor and less capital, it may use the combination of labor and capital represented by point A. In case the country has abundant capital and less labor, it might produce at point B. The isoquants through points A and B shows all the different combinations of labor and capital that can be used to produce 150 units of output.

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