For example, the widespread use of the internet to book holidays has drastically altered how the holiday industry is structured. Any business with significant capacity will have high fixed costs, for example a vehicle manufacturer that spends millions of pounds building a new factory and installing expensive and bulky capital equipment.
Geoff Riley explains fixed costs Fixed costs of production in the short run Geoff Riley explains variable costs What are Variable Costs? Time periods for the firm The fundamental principles of production relate closely to the time periods in question, of which there are four: The very short run A firm is said to be in its very short run when the only way to increase output is by using up existing stocks of inputs.
Similarly if it wants to contract output, then it can retrench workers, purchase less of raw materials and fuel etc. Economic theory predicts that if firms increase the number of variable factors they use, such as labour, while keeping one factor fixed, such as machinery, the extra output or returns from each additional, marginal unit of the variable factor must eventually diminish.
In the long-run all factors are variable. In the short run, at least one factor of production is fixed. Fixed costs do not change with output, firms must pay these even if they shut down Examples include the rental costs of buildings; the costs of leasing or purchasing capital equipment; the annual business rate charged by local authorities; the costs of employing full-time contracted salaried staff; the costs of meeting interest payments on loans; the depreciation of fixed capital due solely to age and also the costs of business insurance.
Variable factor inputs Variable factors are those that do change with output, which means more are employed when production increases, and less when production decreases. It does not matter if the variable is something you manipulated or something you are controlling for.
You can also get paired comparison tests for any Fixed Factors by clicking Post Hocs. So if your categories what you typed into the data are Male and Female, Male will be the default reference. There are a few things you should know about putting a categorical variable into Fixed Factors.