What Is a Fixed Resource and a Variable Resource?
A fixed resource remains unchanged as output increases, and a variable resource changes in tandem with output. All resources are utilized as inputs in the production process.
The four factors of production are land, labor, capital and entrepreneurship. According to the Houston Chronicle, land tends to be a fixed resource due to its limited supply. This results in a higher cost for the eventual product, such as real estate. Capital may also be a fixed resource, for example, if a business was required to pay monthly rental fees for a machine. As for labor, it is the most variable resource because human capital can always be increased to supply more production, and labor can be allocated to the appropriate areas in the economy. Another variable resource is entrepreneurship or the risk of beginning a business and utilizing the other three factors. In addition to explicit costs, variable resources come with opportunity costs. Opportunity cost measures the next best alternative or use of a resource relative to its current use. The total costs brought on by fixed and variable resources affect a company’s pricing and profit decisions. According to AmosWEB, both types of resources exist in the short run, but in the long run, firms’ fixed resources become variable.