ECON 1B03 Lecture Notes - Lecture 7: Grater
24 Jun 2018
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-If Jerry wanted to produce the Quantity at the red line, he is better off building the smaller
plant because he has a lower ATC
- Taking away the overlapping parts that would never be considered due to greater ATC
- We get jerry’s long run average costs for all 2 factory sizes
- If jerry considered an infinite number of factory sizes, he’d face an infinite number of SR cost
curves
oHis LRATC would be a nice, smooth curve
oIt will still be U-shaped, but will be flatter on the bottom
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If jerry wanted to produce the quantity at the red line, he is better off building the smaller plant because he has a lower atc. Taking away the overlapping parts that would never be considered due to greater atc. We get jerry"s long run average costs for all 2 factory sizes. If jerry considered an infinite number of factory sizes, he"d face an infinite number of sr cost curves: his lratc would be a nice, smooth curve, it will still be u-shaped, but will be flatter on the bottom. Just like in the sr, we can talk about the right quantity (producing at capacity, the amount of output that minimizes atc) The level of output q which minimizes lratc is the point of efficient scale. Q1 is the smallest amount we have to produce to minimize lrac (minimum efficient scale) Different levels of output place firms on different points on their lrac curve.
