Econ 1116 lecture 8: the costs of production. A firm can choose from three factory sizes: s, m, & l. The firm can change to a different factory size in the long run but not in the short run. Long range average total cost curve with 3 factory sizes. To produce less than qa firm will choose size s in the long run. To produce between qa and qb firm will choose size m in the long run. To produce more than qb firm will choose size l in the long run. If the company wants to produce only qa and choses a medium sized factory the average cost increases. Always produce where the marginal revenue equals the marginal cost. In the case of this graph you produce at point b. Marginal revenue the change in total revenue from selling one more unit = (change in. Sunk cost a cost that has already been committed and cannot be recovered.
