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 …specialized K & L, only useful @ high Q. 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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