ECON 1000 Chapter Notes - Chapter 11: Average Cost, Marginal Cost, Marginal Product
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Every firm: must decide how much to produce, how many people to employ, how much and what type of capital equipment to use. A firms main objective is profit maximization. The decision made falls under two time frames: the short run. The short run is a time frame in which the quantity of one or more resources used in production is fixed. As a result as you increase the labor, the resources to create products are fixed thus more workers are not needed to do the work. For most firms, capital land and entrepreneurship are fixed factors of production. Other resources such as labor, raw material and energy can be changed in the short run. It can increase or decrease labor in the short run easily. To increase output in the short run, a firm must increase the quantity of a variable factor of production (usually labor: the long run.