LR Production + Costs Flashcards
What is the Long Run?
All FoPs are Variable
FC can change
All Costs are Variable
If all FoPs are variable, what can firms choose from in the LR?
Firms can choose between Different Production Techniques
Firms will choose the Cost-Minimising technique
On a graph, how is LRTC found?
LRTC joins the Lowest TC from each SRTC curve at each Output Level
On a graph, how is LRATC found?
LRATC joins the Lowest ATC from each SRATC curve at each Output Level
What is the M.E.S?
Minimum Efficient Scale
Cheapest possible Cost of Producing
What does a Flat LRATC mean in terms of M.E.S?
The M.E.S can be achieved at Multiple Output Levels
what does a Decreasing, Constant and Increasing LRATC mean?
Decreasing LRATC –> Increasing Returns to Scale
Constant LRATC –> Constant Returns to Scale
Increasing LRATC –> Decreasing Returns to Scale
What are Increasing Returns to Scale?
As all Inputs Increase proportionately–> Output Increases by a Larger Proportion
Economies of Scale
What are Constant Returns to Scale?
As all Inputs Increase proportionately–> Output Increases by the Same Proportion
What are Decreasing Returns to Scale?
As all Inputs Increase proportionately–> Output Increases by a Smaller Proportion
Diseconomies of Scale
What are Economies of Scale?
Higher Production Levels lead to Lower Costs
What are the 3 main causes of E.o.S?
- Indivisibilities in Production- Inputs with Large Capital FC (e.g. train tracks)
- Duplication is Unnecessary - Specialisation / Learning by Doing
- Improve Terms available on Bank Loans- e.g. Lower I.R
What are Diseconomies of Scale?
Higher Production Levels lead to Higher Costs
What are the 2 main causes of D.o.S?
- Managerial Difficulties
2. Geography
What are Returns to Scale?
Long Run Concept
–> Changing All Inputs in Proportion
