Extract
In this chapter we will develop our short run model. If there are n inputs, x1, x2, ... xn, with input prices w1, w2, ... wn, short run means that some of the inputs are fixed at non-zero levels, while others are variable. If the production function is y = f(x1, x2), with two inputs, short run means x2 is fixed at a non-zero level, while x1 is variable. One main implication should be immediately clear: in a short run model, the cost function has a non-zero fixed part. When there are just two inputs, this is w2 times the fixed quantity of input 2. When there are n inputs, this is the sum of the prices of the fixed inputs times the respective quantities of those inputs. Moreover, when there are just two inputs, one fixed and one variable, the short run model will be much like the Chapter 8 model, but with a fixed cost element attached; and if there are three or more inputs, with one or more fixed and two or more variable, the short run model will be much like the Chapter 9 model, but with the fixed cost element attached.