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.
Trang 1Long-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
Trang 2Short-run and long-run increases in output
Trang 6– external economies of scale
– external diseconomies of scale
Trang 7Long-run Costs
• Long-run average costs
– assumptions behind the curve
• factor prices are give
• state of technology and factor quality are
Trang 8Alternative long-run average cost curves
Output O
Trang 9Output O
Trang 10Output O
Trang 11Long-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
Trang 12A typical long-run average cost curve
Output O
Trang 13Output O
of scale Constant costs Diseconomies of scale
A typical long-run average cost curve
Trang 14Long-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
Trang 15Long-run average and marginal costs
Output O
Trang 16Output O
Trang 17Output O
Trang 18Output O
Long-run average and marginal costs
Trang 19Long-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 run average costs
Trang 20short-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 run average costs
short-– the envelope curve
Trang 21Deriving long-run average cost curves: factories of fixed size
Trang 22Deriving long-run average cost curves: factories of fixed size
Trang 23Deriving a long-run average cost curve: choice of factory size
Examples of shortrun average cost curves
Trang 24Deriving a long-run average cost curve: choice of factory size
Trang 25Long-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