Short run, long run; TP, AP, MP

Time matters in production.

• Short run: at least one input is fixed (say, the factory and its machines); only the others (labour) can be varied.
• Long run: all inputs can be varied.

The short run is not a fixed number of months; it depends on how long it takes to change the fixed inputs. If you are stuck with the factory you have, it is the short run; once there is time to change everything, it is the long run. (Keynes joked that 'in the long run we are all dead'.)

Labour is measured in working hours, not in heads. If a working day is 8 hours, two people who work 12 hours between them supply 1.5 units of labour, not 2.

With capital fixed, output depends on how much labour is used:

• Total product (TP): the total output from a given amount of the variable input.
• Average product (AP) = TP ÷ L: output per worker.
• Marginal product (MP) = ΔTP: the extra output from one more worker. It is not defined at zero input.

Example, with a fixed amount of capital:

TP is the sum of the MPs (8 + 12 + 16 + 8 + 4 = 48), and AP is the average of the MPs.