ch8 - Chapter 8 Producers in the long-run Long-run cost...

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Chapter 8 – Producers in the long-run Long-run cost curves o Exercise 8.1 : Production functions, returns to scale and economies of scale o Exercise 8.2 : Short-run and Long-run average cost curves Long-run cost curves LRAC curve ( Fig 8-3 )… …is the envelope of the SRATC curves …does not necessarily contain the minimum points of every SRATC. …shifts if input prices or technology changes Minimum Efficient Scale (MES) : Lowest Q that minimizes LRAC. Principle of substitution: Pick labour (capital) intensive method if labour (capital) is relatively cheap Economies of scale (decreasing LRAC) …is implied by increasing returns to scale (if all inputs double then output more than doubles) …is caused by …the spreading of fixed costs Maria Gallego EC120 – Rangan and Lipsey-- Chapter 8 – Producers in the long-run page 1 of 3
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Long-run cost curves Constant costs (constant LRAC) …is implied by
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This note was uploaded on 01/17/2012 for the course ECONOMICS 120 taught by Professor Mesta during the Fall '10 term at Wilfred Laurier University .

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ch8 - Chapter 8 Producers in the long-run Long-run cost...

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