theme 3 : costs in the long run

in the long run all factors of production are

variable

a short run cost curve shows what

the minimum cost per unit for different levels of output

the long run average cost curve does what

traces the relationship between the lowest attainable average total cost and output when both capital and labour inputs are variable

if when a firm expands it moves onto a lower short run average cost curve it is experiencing what

internal economies of scale

if when a firm expands it moved to a short run average cost curve that is at the same level it is experiencing what

constant returns to scale

if when a firm expands it moves onto a new higher short run average cost curve it is experiencing what

internal diseconomies of scale

what are 3 internal economies of scale

• technical economies of scale

• specialisation

• indivisibility

indivisibility definition

• if you buy a particular piece of equipment you need to ensure its being used all the time

• if its not then indivisibilities occur

• piece of capital equipment not being fully utilised