A variable input in economics is a factor of production that can be increased or decreased within a given timeframe. Typically, only labor is variable in the short-run, but in the long-run all inputs eventually become variable.
Consider a pizza restaurant in the short run with a fixed-size oven. Faced with a surge in customer demand, the restaurant can swiftly respond by hiring additional staff, because labor is a variable input. This flexibility allows the business to meet short-term fluctuations in demand without altering fixed factors such as oven size.
Most short-run undergraduate microeconomic models tend to be simplified by considering only labor and capital in the production process. Capital is held to be a fixed input, while labor is a variable input. This concept also has connections to different schools of economics. The Keynesian school is focused on the short-run, while the classical school is concerned with the long-run.
In a practical scenario, a manufacturing company responding to an increased demand for electric cars in the long run can strategically adjust all its inputs. This might involve hiring additional skilled workers, incorporating advanced machinery, or adopting innovative technologies to optimize production efficiency. The fluidity of variable inputs in the long run enables businesses to align their resources dynamically with evolving market demands.
The classical school of economics, which emerged in the late 18th century and continued into the 19th century, emphasizes the idea of long-run equilibrium. According to classical economists like Adam Smith and David Ricardo, the economy tends to move toward a state of equilibrium over the long run. In this equilibrium, all factors of production, including both labor and capital, are variable.
The time it takes for fixed inputs to become variable inputs depends on the nature of the industry and the specific characteristics of the inputs involved. In general, industries with high levels of capital-intensive production and long lead times for capital investment are more likely to have fixed inputs that take a longer time to become variable.
Heavy Manufacturing and Infrastructure - Industries involved in heavy manufacturing, such as steel production or large-scale infrastructure projects (e.g., bridges, dams), often require substantial and long-term investments in fixed capital. Constructing or modifying facilities in these industries can take considerable time and resources.
Energy Production - Power plants, whether conventional or renewable, typically involve significant fixed capital investments in facilities and equipment. Transitioning to new energy sources or upgrading existing infrastructure in the energy sector can be a time-consuming process.
Telecommunications Infrastructure - Building and upgrading telecommunication networks, such as the rollout of new generations of wireless technology, often require substantial fixed investments in infrastructure. The deployment of new technologies can take time due to the complexity of the network.
In these industries, the fixed nature of the inputs is influenced by the capital intensity of production, regulatory considerations, technological complexity, and the time required for planning and implementation. The longer timeframes for these fixed inputs to become variable inputs reflect the challenges associated with modifying or adapting capital-intensive production processes.