Question
Distinguish between:
  1. Short run and Long run.
  2. Returns to variable factor and Returns to scale.

Answer

  1. During short run/ period both kind of inputs, i.e., fixed and variable exist simultaneously, whereas in the long run/period only variable inputs exist because even the fixed inputs of the short period become variable in the long period. In the short run, all factors of production cannot be changed in the same proportion, but in the long run, all factors of production can be changed in the same proportion.
  2. Returns to a variable factor (short period phenomenon) is termed as the "Law of Variable Proportion,” because it shows the effect of a change in Total Product and Marginal Product when the ratios between fixed and variable factors keep on changing, as additional units of variable factor are employed, whereas Returns to Scale (long period phenomenon) refers to all factors of production being variable, so that there is no fixed factor in the long run. Thus, when due to change in scale of production, Total Product changes, it is known as “Returns to Scale."

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