3.6 - Firms and production
3.6.1 - Demand for factors of production
Short run and long run production
Short run
● The production process in which there is at least one fixed factor
● E.g cost
● Usually producing time
Long run
● The production process in which there are no fixed factors, and all factors
are variable
● Usually planning time
Factors of production
● Factors of production are used in the production process to make outputs
● Each factor has their own demand determinants
1) Type of FOPs employed is influenced by the type of product produced, the
productivity of the FOP and their cost
2) Capital- OR labour-intensive
3) Rise in productivity OR cost of FOPs → result in a change in the combination
of resources being employed
Price of the factors of production
1) Land - rent
2) Labour - wages/salary
3) Capital - interest → investment
4) Enterprise - profit
Altering factors of production
● Firms can alter or substitute factors of production between one another
○ E.g labour and capital
● If a firm were to alter land, it would be troublesome because land is a fixed
factor in the short run
● Important to achieve the right combinations of FOPs
Demand for land
1) Productivity
● Easy to operate land → for more efficiency etc
3.6.1 - Demand for factors of production
Short run and long run production
Short run
● The production process in which there is at least one fixed factor
● E.g cost
● Usually producing time
Long run
● The production process in which there are no fixed factors, and all factors
are variable
● Usually planning time
Factors of production
● Factors of production are used in the production process to make outputs
● Each factor has their own demand determinants
1) Type of FOPs employed is influenced by the type of product produced, the
productivity of the FOP and their cost
2) Capital- OR labour-intensive
3) Rise in productivity OR cost of FOPs → result in a change in the combination
of resources being employed
Price of the factors of production
1) Land - rent
2) Labour - wages/salary
3) Capital - interest → investment
4) Enterprise - profit
Altering factors of production
● Firms can alter or substitute factors of production between one another
○ E.g labour and capital
● If a firm were to alter land, it would be troublesome because land is a fixed
factor in the short run
● Important to achieve the right combinations of FOPs
Demand for land
1) Productivity
● Easy to operate land → for more efficiency etc
