Abstract
Fixed production factors have previously been defined as being production factors the quantity of which cannot vary within the planning horizon under consideration. Hence, they are characterised by the fact that the company is unable/unwilling to buy or sell production factor units.
However, how are these fixed production factors “generated”? What is the reason why some production factors are fixed whilst others are variable? For how long is a production factor actually fixed? And what is the financial implication of some production factors being fixed? As such, fixed production factors are supposed to entail restrictions which we would like to avoid.
It is questions like these that will be discussed in this chapter. In this connection, there will be a particular focus on the description of the ways in which the fixation of production factors affects the economic behaviour of the producers.
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Notes
- 1.
The marginal factor costs of production factors that are owned by the company represent the income forgone from not renting out the production factor in question (e.g. to the neighbour). With regard to the opportunity cost principle, the income forgone in connection with the best alternative usage should be used.
- 2.
In practice, this is seldom done, even for production factors that are easily recognised as being completely variable. Normally, so-called transaction costs would be involved which reflect the difference between the purchase and the sales price.
- 3.
Assume that the value of the property with the asset is MU A, the value without the asset is MU B, and the sales price of the asset is MU C. The fixed-price index (FI) can then be calculated as: FI = (A – B − C)/(A − B). If e.g. C = 0 then FI is equal to 1, corresponding to an entirely fixed asset. If C = A − B then FI is equal to 0, corresponding to an entirely variable asset.
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© 2011 Springer-Verlag Berlin Heidelberg
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Rasmussen, S. (2011). The Fixation of the Production Factors. In: Production Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14610-7_12
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DOI: https://doi.org/10.1007/978-3-642-14610-7_12
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-14609-1
Online ISBN: 978-3-642-14610-7
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