3/24 - cost at an increasing rate Notice that each point on...

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3/24/08 Up to now, short run; What about long run? A firm only views K as a planning tool. Chosen in consequence of having chosen a very narrow band for output level, Q=. It’s called the scale of operation If we remind ourselves of what ATC consists of, we will know how to draw the firm’s cost in the long run. In this case, we use ATC = AFC + AVC Once we allow K, every Q has a new AFC; which in turn, means every Q has a different ATC. In other words, K ATC curve. “Diseconomies of scale”- when a firm is so large, getting bigger casuses increasing
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Unformatted text preview: cost at an increasing rate. Notice that each point on the LRAC is a tangency with one ATC curve. Which point’s an ATC is the tangency with the LRAC? Liebowitz- thanks Boeing produced 10 jets in March and had long run cost of $100 million. In April, they produce 11 jets at $101 million. A) economies of scale B) diseconomies of scale C) constant returns scale D) a retard for an economics teacher Economies of scale LRAC average goes down, output increases...
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