# Long run cost

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##### Intros

###### Lessons

**Short Run Cost Overview:**__Long-Run Production Function__- Both labour and capital vary
- Table for Production Function
- Diminishing returns of marginal product of labour
- Diminishing returns of marginal product of capital

__Short-Run Costs & Total Average Costs__- All ATC curves are U-shaped
- More machines = bigger output at minimum average cost
- Planned output $\,$→$\,$ find the lowest possible cost

__Long-Run Average Cost__- LRAC: Long Run Average Cost
- Lowest attainable cost across all ATC curves
- What it looks like

__Economies & Diseconomies of Scale__- Economies of Scale: $\downarrow$ average cost as output $\uparrow$, falling LRAC
- Diseconomies of Scale: $\uparrow$ average cost as output $\uparrow$, rising LRAC
- Constant Returns to Scale: average cost unchanged as output $\uparrow$, horizontal LRAC
- Minimum Efficient Scale

##### Examples

###### Lessons

**Finding the Average Total Costs**

Suppose the cost of each machine is $50, and the cost of each worker per week is $50. Using the following table to calculate and graph the ATC curves for factories 1 and 2.Labour (workers per week)

Output (Clothes per week)

Factory 1

(1 machine)

Factory 2

(2 machines)

Factory 3

(3 machines)

Factory 4

(4 machines)

1

10

30

45

55

2

30

50

65

75

3

45

65

80

90

4

55

75

90

100

5

60

80

95

105

- Suppose the cost of each machine is $50, and the cost of each worker per week is $50. Using the following table to calculate and graph the
ATC curves for factories 3 and 4.
Labour (workers per week)

Output (Clothes per week)

Factory 1

(1 machine)

Factory 2

(2 machines)

Factory 3

(3 machines)

Factory 4

(4 machines)

1

10

30

45

55

2

30

50

65

75

3

45

65

80

90

4

55

75

90

100

5

60

80

95

105

**Understanding the Long-Run Cost Curve**

Suppose you are given 4 ATC curves on the following graph.- Suppose you are given 4 ATC curves on the following graph.