A30-Long Run Average Cost Curves

Long-Run Average Cost Curves

In the short run, firms can vary output but not plant capacity.

Long run, defined as a time period in which the firm can vary its plant capacity and its output.

In the short run, the shapes of the average and marginal cost curves result from diminishing marginal productivity of the resources.

In the long run, the shape of the average cost curve results from economies and diseconomies of scale.

Sources of economies of scale are specialization of resources, more efficient uses of equipment, a reduction in per-unit costs of factor inputs, an effective use of production by-products and an increase in shared facilities.

Sources of diseconomies of scale are limitations on management decision making and competition for factor inputs.

Use the Long-Run Average Total Cost Curve below to answer the following questions: