ECON 1B03 Lecture 23: LR Costs of Production

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

B/c many costs are fixed in short run but variable in long run, a firm"s long-run cost curves differ from its short-run cost curves. Jerry"s factory size is fixed in sr (fixed input) In sr, cost of factory is fixed. In lr, jerry can build a bigger factory, buy more machines, etc. Consider 3 diff. sizes of factories jerry could buy in lr: There is a diff. set of sr cost curves for each size of factory (once you build plant, you incur new fixed costs, so for every lr there"s an associated sr) If jerry considered an infinite # of factory sizes, he"d face an infinite # of sr cost curves. His lrac would be a nice, smooth curve. Just like in sr, we can talk about producing right quantity. Level of output q which minimizes lrac is point of efficient scale. Different levels of output place firms on diff. points on their lrac curve.