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Elasticity of Supply - 24 |
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A firm, in the ''short run'', can not increase its
capital stock; the machinery used in production. A firm may have
unutilised capacity or excess capacity, however. Such a firm can increase
production by using its capital more intensively by having extra shifts (night shifts,
week end shifts, overtime), assuming labour and materials can be accessed in extra quantities
in the same time.
If all the machinery used in production is being fully used, however, the ability to increase
production is limited. A firm in this situation will find its supply curve inelastic.
In the ''short run'', supply is reasonably elastic; however labour costs may rise per unit of
production if your work force is paid penalty rates for night shifts and weekend shifts.
In the long run, firms have the
time to invest in new capital. In the ''long run'', supply is at its most elastic, as
production can be increased markedly.
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