March 17th, 2014 Lecture 23 Ch. 11: Long-run costs

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March 17th, 2014 Lecture 23 Ch. 11: Long-run costs Economics 111.3 Winter 14 March 17th, 2014 Lecture 23 Ch. 11: Long-run costs

Long Run Cost In the long run, the firm can vary both its use of labour and of capital. It will vary the use of both factors of production to maximize profits. As a result, long-run cost will always be less or equal to short-run cost. 63 2

Firm Size & Costs ATC-4 ATC-3 ATC-1 ATC-2 ATC-5 4

Firm Size & Costs ATC-4 ATC-3 ATC-1 ATC-2 ATC-5 5

The Long-Run Average Cost Curve The segments of the short-run average total cost curves along which average total cost is the lowest make up the long-run average total cost curve. For every plant capacity size, there is a corresponding short-run ATC curve It shows the least ATC at which any output can be produced after the firm has had time to make all appropriate adjustments in its plant size. LRAC curve is the firms planning curve

The Long-run Cost Curve the number of possible plant sizes is virtually unlimited 7