Managerial Economics and Strategy, 2/e

5.3 Long-Run Production

We started our analysis of production functions by looking at a short-run production function in which one input, capital, was fixed, and the other, labor, was variable. In the long run, however, both of these inputs are variable. With both factors variable, a firm can usually produce a given level of output by using a great deal of labor and very little capital, a great deal of capital and very little labor, or moderate amounts of both. That is, the firm can substitute one input for another while continuing to produce the same level of output, in much the same way that a consumer can maintain a given level of utility by substituting one good for another.

Typically, a firm can produce in a number of different ways, some ...