Long Run Costs Flashcards
Long Run meaning
all fop are variable
as its logn run means bs can
increase any FOP
What is scale
when bs increases aany FOP
The LR is all about
returns to scale
returns to scale
Relationship between increases in the Q of a firms inputs and teh prop change in output
shape of LRAC due to
returns to scale
Long run consists of
lots of SR
Why does LR consist of lots of diif SRs
intially bs confined by FFOP
but eventually can increase FOP
but then confined again by new lvl of FOP
till they can increase again
then when we join these up get LRAC
Whats on y axis of long run costs
cost
what’s on x axis of long run costs
output
describe and draw LR cost
smooth bucket shape
Split LRC into 3 , what happens in stage 1
Business is experiencing increasing returns to scale
What si icnreasing returns to sclae
when % change in ouptut > than percentage change in input
why is the increasing returns to scale/1st part of LRAC graphs haped liekd that
when bs increase FOP get more out than what was put in
costs increase but output increases faster
therefore average costs decreases
What is decreasing returns to scale
when % change in output less than % change in input
why is the decreasing returns to scale/1st part of LRAC graphs haped liekd that
business increasing FOP means costs are rising
but getting less out in return
so quantities rising but slower than the increasing costs
therefore average costs increase
What is constant returns to scale
when %change in output = %change in input
in constant returns to scale as the % change in outptu and input are equal waht is the curvwe shaped liek
(AC which are flat and) constant
businesses have increasing/decreasing returns to scale due to
dis/economies of scale
when bs experiences economies to scale they get
increasing returns to scale
Minimum efficient scale is
lowest lvl of output at which avg total COSTSOP are minimised
Where+ draw is the MES
lowest lvl output wehreby avg cost curve stops decreasing
after the MES what happens
no more EOS
jsut constant returns to sclae
Why is the MES important for bs to know
so they know after that point/quantity costs cant get any lower
Draw the two alt econ of s
smile face
makeshift AFC curve
Why is smiley face incorrect
unrealistic as dont show constant returns
claims when bs hits MES straight away xp disecon/decreasing RTS
which is rare as there’s always period of constant returns
ask about natural monopoly LR CC
YAH
