Chapter 13 - -the shape if the LRAC is due to economies of...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
10.22.2007 Chapter 13 Costs in the SR -every additional worker you hire is contributing less, but is costing you the same, so the AC goes up -the marginal cost and average variable cost shapes are due to the law of diminishing marginal returns -average cost curve is the sum of average fixed cost(constantly declining) + average variable cost(u-shape) -AC=AFC+AVC -net result: u-shape -as output increases, the afc gets closer and closer to zero, therefore, ac and avc get closer and closer to each other…the only time they intersect is if afc=0 Costs in the LR -no average fixed cost curve…no avc curve -no fixed inputs or variable inputs -you cannot use the law of diminishing marginal returns to explain the shape of the long run curve because there are no fixed inputs
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: -the shape if the LRAC is due to economies of scale-economies of scale-costs decline as output increases-diseconomies of scale-costs increase as output increases e.g.-coordination problems-the lowest point of the ac curve is the minimum efficient scale *short run shapes are explained using the law of diminishing marginal returns, the long run shape is explained by economies of scale! How do we obtain the LRAC? q=KL k1=4, k2=8, k3=12 so, q1=4L q2=8L q3=12L each production function gives you one set of cost curves.-in the long run, you have a lot more flexibility and choices, therefore you should be able to have lower costs.-long run ac curve is below the srac curve…it forms the outer envelope(lower limit) of the sracs...
View Full Document

This note was uploaded on 03/30/2008 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

Ask a homework question - tutors are online