Classification of Inputs:
In production theory, inputs are divided into Fixed and Variable inputs. The distinction is important in that it helps us to determine whether a firm which does not cover its total costs of production (a loss making firm) should stay open or shut down in the short-run.
(a) Fixed Input
A fixed input is an input whose quantity cannot be varied in the short-run when demand conditions require an increase or a decrease in production e.g. factory building, capital equipment, some skilled labour, etc.
(b) Variable Input
A variable input is that which can be changed in all times of production when demand conditions change to require a change in production e.g. raw materials, electrical power, unskilled labour, etc.
Average product is measured in respect of a variable factor. For instance, where the variable factor is say labour (L), then it is the average product of labour (APL) or the productivity of labour that we can measure as:
