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Chapter 7: Q 26. (page 184)

What is a long-run average cost curve?

Short Answer

Expert verified

The sum of many short run average cost curves is the long run average cost curve.

Step by step solution

01

Step 1. Introduction

The long run is defined as a time span during which all production parameters, referred to as inputs, are variable and businesses have enough leverage to enter and depart any market or industry.

02

Step 2. Explanation

The long run is defined as a time span during which all production parameters, referred to as inputs, are variable and businesses have enough leverage to enter and depart any market or industry.

The long run average cost curve of a firm illustrates the minimum average total cost at which a firm may achieve a certain amount of production in the long run when all inputs are variable.

With the help of the diagram below, this is explained:

The sum of many short run average cost curves is the long run average cost curve.

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Most popular questions from this chapter

What is a production technology?

Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run?

Return to Figure 7.7. What is the marginal gain in output from increasing the number of barbers from 4 to 5 and from 5 to 6? Does it continue the pattern of diminishing marginal returns?

What shapes would you generally expect each of the following cost curves to have: fixed costs, variable costs, marginal costs, average total costs, and average

variable costs?

What is the difference between economies of scale, constant returns to scale, and diseconomies of scale?
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