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Short Run Cost Function

  Short Run Cost Function

    The short run is denoted as a term of phase in which productivity of an industry can be enhanced or reduced by amending the volume of variable aspects such as labour, inputs, chemicals, fuels etc. while the volume of such aspects as capital equipment, building residual predefined.

    Therefore, in the short run an industry’s supervisor cannot judge to construct a fresh plat or abandon an old one. If an industry is required to enhance its productivity in the short run, it can be done by only using additional labour and inputs.

    It cannot enhance productivity in the short run by expanding the capacity of the subsisting plant or building a new plant with a larger capacity. Thus, the short run cost function associates the cost of manufacturing with the degree of productivity where capital are kept invariable along with the provided technology and provided factor prices.

     The dissimilarity among the short run and long run cost function is that whereas in the former the cost-productivity association is analysed with a certain volume of capital or land specified, the long run cost function studies the association among cost productivity when capital and land also vary along functions we analyse the association among the cost and degree of productivity i.e. F = f (O), the disparity falls in aspects that are varied to enlarge or retrench productivity.

    Whilst in the long run the sophistication in technology and amendments in aspect prices cause a movement in the long run cost function, in the short run function, apart from the technology and factor prices some set factors such as capital or land also fetch about a shift in the cost function.

     As has been pointed out above, in deviating the cost function or cost curve, particularly in the long run it is presumed that every level of productivity of a product is manufactured at the minimum feasible cost.

      This entails, that it is presumed that the industry applies maximum or minimum effective resource combinations. Therefore, every point on the long run cost function or long run cost curve, denotes the use of maximum resource combination so as to make sure economical cost of manufacturing of every level of productivity.

     Still in the short run it is presumed that provided the dimension of the plant that is capital equipment the industry functions to reduce cost for manufacturing diverse level of productivity.

      There are some inputs aspects which can be readily adjusted with the changes in the productivity level. Therefore, an industry can willingly apply more labourers, if it has to enhance productivity.

      Similarly, it can protect and utilise more inputs, more chemicals without much impediment if it has to enlarge manufacturing. Therefore, worker, inputs, chemicals etc are the aspects that can be willingly mixed with the variation in productivity

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