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Long Run Costs

Module. Micro: Econ:. 20. 56. Long Run Costs. KRUGMAN'S MICROECONOMICS for AP*. Margaret Ray and David Anderson. What you will learn in this Module :. Why a firm’s costs differ in the short run versus the long run. How a firm can enjoy economies of scale. Returns to Scale.

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Long Run Costs

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  1. Module Micro: Econ: 20 56 Long Run Costs • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • Why a firm’s costs differ in the short run versus the long run. • How a firm can enjoy economies of scale.

  3. Returns to Scale The long-run average cost curve for a firm is “U- shaped” like the short-run average cost curves – but for a different reason.

  4. Short-run versus Long-run Costs • The short run: at least one input is fixed (can not be changed) • The long-run: all inputs are variable

  5. Economies and Diseconomies of Scale • Economies of Scale: the LRATC is falling as the firm expands. • Diseconomies of Scale: the LRATC is rising as the firm expands.

  6. Sunk Costs • A sunk cost is a cost that has been incurred in the past and cannot be recovered. • Sunk costs don’t matter in decision-making!

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