19-03-2012, 01:26 PM
Long Run Cost
8-3longruncosts.ppt (Size: 841.5 KB / Downloads: 125)
Making Long-Run Production Decisions
To make their long-run decisions:
Firms look at costs of various inputs and the technologies available for combining these inputs.
Then decide which combination offers the lowest cost.
Technical Efficiency and Economic Efficiency
Technical efficiency – as few inputs as possible are used to produce a given output.
Technical efficiency is efficiency that does not consider cost of inputs.
Economies of Scale and Long-Run Cost Curves
In the long run, a firm has many sizes to choose from.
The short run requires that scale be fixed— only one or a few resources can be changed.
Determinants of the Shape of the Long-Run Cost Curve
The law of diminishing marginal productivity does not hold in the long run.
All inputs are variable in the long run