If capital is fixed at K 1 in the short run output q 2 can be produced only by

If capital is fixed at k 1 in the short run output q

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If capital is fixed at K 1 in the short run, output q 2 can be produced only by increasing labor from L 1 to L 3. In the long run, the same output can be produced more cheaply by increasing labor from L 1 to L 2 and capital from K 1 to K 2 . Isoquant (red lines) Isocost (blue lines)
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37 of 43 Long-Run Average Cost long-run average cost curve (LAC) Curve relating average cost of production to output when all inputs, including capital, are variable. short-run average cost curve (SAC) Curve relating average cost of production to output when level of capital is fixed. long-run marginal cost curve (LMC) Curve showing the change in long- run total cost as output is increased incrementally by 1 unit. In the long run, the ability to change the amount of capital allows the firm to reduce costs (all inputs can vary). The determinant of the shape of the long-run average and marginal cost curves is the relationship between the scale of the firm’s operation and the inputs that are required to minimize its costs.
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38 of 43 Long-Run Average Cost The determinant of the shape of the long-run average and marginal cost curves is the relationship between the scale of the firm’s operation and the inputs that are required to minimize its costs. If q=100, LAC is $1000/100 = $10 per unit q = 300, LAC is also $10 per unit. Constant AC means a constant MC.
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