Chapter9 Long Run Costs and Output Decisions

Chapter9 Long Run Costs and Output Decisions - Decreasing...

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Breaking even: the situation in which a firm is earning exactly a normal rate of return Shutdown point: the lowest point on the average variable cost curve. When prices falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs Short run industry supply: the sum of marginal cost curves of all the firms in an industry Increasing returns to scale or economies of scale: an increase in a firms scale of production leads to lower costs per unit produced Constant returns to scale: an increase in a firms scale of production has no effect on costs per unit produced
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Unformatted text preview: Decreasing returns to scale or diseconomies of scale: an increase in a firms scale of production leads to higher costs per unit produced Long run average cost curve: the envelope of a series of short run cost curves Minimum efficient scale: the smallest size at which the long-run average cost curve is at its minimum Optimal scale of plant: the scale of plant that minimizes average costs Long run competitive equilibrium: when p=srmc=srac=lrac and profits are zero Present value: price/(1+rate)^n ,n is the number of years ; PV=( R) / (1+r)^t Chapter9: Long Run Costs and Output Decisions Monday, October 03, 2011 2:51 PM Econ 2106 Page 1...
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