Lecture Element of economics - Chapter 7: Long-run costs. The topics discussed in this chapter are: Production in the long run, short-run and long-run increases in output, alternative long-run average cost curves, long-run average costs, relationship between long-run and short-run average costs, long-run average cost curves in practice, decision making in different time periods. | Long-run Costs Production in the long run meaning of the 'long run' returns to scale constant returns to scale increasing returns to scale decreasing returns to scale Short-run and long-run increases in output Short-run and long-run increases in output Short-run and long-run increases in output Short-run and long-run increases in output Long-run Costs Production in the long run (cont.) economies of scale specialisation and the division of labour indivisibilities container principle greater efficiency of large machines by-products multi-stage production spreading overheads financial economies economies of scope diseconomies of scale external economies of scale external diseconomies of scale Long-run Costs Long-run average costs assumptions behind the curve factor prices are give state of technology and factor quality are given firms choose least-cost combination of factors shape of the LRAC curve Alternative long-run average cost curves Output O Costs LRAC Economies of Scale Output O Costs LRAC Diseconomies of Scale Alternative long-run average cost curves Output O Costs LRAC Constant costs Alternative long-run average cost curves Long-run Costs Long-run average costs assumptions behind the curve factor prices are give state of technology and factor quality are given firms choose least-cost combination of factors shape of the LRAC curve a typical LRAC curve A typical long-run average cost curve Output O Costs LRAC Output O Costs LRAC Economies of scale Constant costs Diseconomies of scale A typical long-run average cost curve Long-run Costs Long-run average costs assumptions behind the curve factor prices are give state of technology and factor quality are given firms choose least-cost combination of factors shape of the LRAC curve a typical LRAC curve long-run average and marginal cost curves Long-run average and marginal costs Output O Costs LRAC LRMC Economies of Scale Output O Costs LRAC LRMC Diseconomies of Scale Long-run average and marginal costs Output O Costs LRAC = LRMC Constant costs Long-run average and marginal costs Output O Costs LRMC LRAC Initial economies of scale, then diseconomies of scale Long-run average and marginal costs Long-run Costs Long-run average costs assumptions behind the curve factor prices are give state of technology and factor quality are given firms choose least-cost combination of factors shape of the LRAC curve a typical LRAC curve long-run average and marginal cost curves Relationship between long-run and short-run average costs Long-run Costs Long-run average costs assumptions behind the curve factor prices are give state of technology and factor quality are given firms choose least-cost combination of factors shape of the LRAC curve a typical LRAC curve long-run average and marginal cost curves Relationship between long-run and short-run average costs the envelope curve Deriving long-run average cost curves: factories of fixed size SRAC3 Costs Output O SRAC4 SRAC5 5 factories 4 factories 3 factories 2 factories 1 factory SRAC1 SRAC2 SRAC1 SRAC3 SRAC2 SRAC4 SRAC5 LRAC Costs Output O Deriving long-run average cost curves: factories of fixed size Deriving a long-run average cost curve: choice of factory size Costs Output O Examples of short-run average cost curves LRAC Costs Output O Deriving a long-run average cost curve: choice of factory size Long-run Costs Long-run average cost curves in practice the evidence minimum efficient plant size Decision making in different time periods very short run short run long run very long run akpe na mi!
