A Short Course in Intermediate Microeconomics with Calculus

In most of the last chapter we modeled a firm with one input and one output. However, assuming one input is unrealistic; most goods and services are produced by firms with a variety of different inputs. The production of something as simple as corn really requires land, labor, trucks, tractors, combines, fertilizer, pesticides, possibly irrigation, and so on. Moreover, the single-input model fails to capture a basic economic problem. In this chapter we will assume the inputs are both (or all) freely variable. In the next chapter we will assume one or more of the inputs is fixed over the underlying time horizon, while one or more of the inputs is variable. Economists call a period of time that is so long that all of the firm’s inputs are freely variable the long run, and they call a period of time that is so short that one or more inputs is fixed the short run. Therefore this chapter is about the theory of the firm in the long run. The next chapter is about the theory of the firm in the short run. We are doing the long run theory first because it is simpler and more elegant than the short run theory.