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1. Why do a firm's costs differ between the short run and the long run?

2. How can a firm enjoy economies of scale?

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Define (using graphs where appropriate) key terms and concepts relating to production and cost.

Explain (using graphs where appropriate) how production and cost are related in the short run and long run.

Calculate (using data from a graph or table as appropriate) the various measures of productivity and short-run and long-run costs.

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Firms’ production and cost constraints over different input and output levels shape optimal decisions in the short run and long run.

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In the long run, firms can adjust all their inputs, and as a result, all costs become variable.

The relationship between inputs and outputs in the long run is described by the scale of production—increasing, decreasing, or constant returns to scale.

The long-run average total cost is characterized by economies of scale, diseconomies of scale, or constant returns to scale (efficient scale).

The minimum efficient scale plays a role in determining the concentration of firms in a market and the market structure.

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APMic Unit 3 Lesson 3 - Long-Run Production Costs Flashcards | Quizlet

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Start studying APMic Unit 3 Lesson 3 - Long-Run Production Costs. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

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Entry, Exit, & Supply Curves: Increasing Costs | Microeconomics Videos

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As industry output increases, what happens to costs? We look at an increasing cost industry, a constant cost industry, and a decreasing cost industry.

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This is just a follow-on to the answer I gave above (but please remember I'm just another student, not a professor). Here's another way to look at the same problem, which really gets at the exact same phenomenon. Remember in an earlier discussion about taxes, the question was raised "who pays the tax?" If so, you'll recall that the answer depended on the relative elasticity of the demand vs. supply curves. In addition, it was made clear that any inelasticity (on either the supply or demand side) would result in some fraction of the tax burden falling on that side. Now in the current discussion, it was shown that the supply curve in an increasing cost industry has a positive slope, which is indicative of some degree of supply inelasticity, meaning that the suppliers will in fact incur some fraction of the "tax". But how does this happen in reality? When a consumer purchases a pair of the new pajamas, they will not pay the full new cost= (old price+tax (in this case $2)) but instead will only pay: (old price +fraction of the tax (i.e., something less than $2)). The only difference between the regulation and a tax is that if the $2 here was an actual tax, the consumer would probably directly pay the full tax but the supplier would have to pay his share in the form of a pre-tax price reduction (i.e., a price less than the original price).

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Entry, Exit, and Supply Curves: Constant Costs | Microeconomics Videos

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This is just a follow-on to the answer I gave above (but please remember I'm just another student, not a professor). Here's another way to look at the same problem, which really gets at the exact same phenomenon. Remember in an earlier discussion about taxes, the question was raised "who pays the tax?"

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Question 3: The demand for California doughnuts may have increased over the last 40 years but that demand was too small to pressure the stock of inputs (sugar, flour) and raise their price. Inputs are just as abundant, their price is the same, the doughnut recipe is the same. This is why the production cost has not increased. The cost has not decreased because there are no cluster effects to the doughnut production. Entrants in the doughnut industry do not lower their production costs just by placing themselves in the proximity of other doughnut producer. A doughnut producer does not specialize inputs around it, does not create special knowledge which can then be used by other entrants.
Question 4: According to the video, the cost decreases as new suppliers come in to generate more output, because their activity also generates specialized knowledge (for example in the form of trained workers) which can be used by all other suppliers. If demand decreases more suppliers exit the carpet market. As they leave, Dalton, Georgia starts doing something else. The remaining specialized knowledge around the still existing suppliers erodes (for example workers retire). The few suppliers left will have to hire new workers but pay the cost of their training.

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Entry, Exit, & Supply Curves: Decreasing Costs | Microeconomics Videos

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Question 3: The demand for California doughnuts may have increased over the last 40 years but that demand was too small to pressure the stock of inputs (sugar, flour) and raise their price. Inputs are just as abundant, their price is the same, the doughnut recipe is the same.

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M09_Basic Outline of Productivity and Cost

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M10_Why Productivity is Basis of Firm's Cost

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Returns to scale describes the rate of increase in production relative to the associated increase in the factors of production in the long run. At this point, all factors of production are variable (not fixed) and can scale. Therefore, the scale of production can be changed by changing the quantity of all factors of production.

The difference between economies of scale and returns to scale is that economies of scale show the effect of an increased output level on unit costs, while return to scale focus only on the relation between input and output quantities.

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Returns to Scale | Intelligent Economist

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Returns to scale describes the rate of increase in production relative to the associated increase in the factors of production in the long run. At this point, all factors of production are variable (not fixed) and can scale. Therefore, the scale of production can be changed by changing the quantity of all factors of production.

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Economies Of Scale Explained In Depth - Intelligent Economist

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Economies of scale are achieved when increasing the scale of production decreases long-term average costs (i.e. the cost of production per unit decreases).

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Short-Run Costs  (Part 1)- Micro Topic 3.2

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Cost Curves- Microeconomics 3.3 (Part 2)

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In this video I explain how to draw and analyze the cost curves. Most teacher sad professors focus on the per unit cost curves. That included marginal cost, average total cost, average variable costs, and the average fixed cost. Each have a specific shape.

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Marginal Cost and Average Total Cost- Micro 3.4

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In this video I explain why MC decreases and then increases and why the MC hits ATC at the minimum point of the ATC curve. Very exciting stuff! Thanks for watching. Please subscribe.

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Economies of Scale and Long-Run Costs- Micro Topic 3.3

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Uploaded by Dave Anderson on 2016-09-09.

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Economies of Scale and Long-Run Costs- Micro Topic 3.3

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Production, cost, and the perfect competition model | Khan Academy

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This unit covers production and cost analysis and the behavior of firms in perfect competition. Topics include an introdduction to the short-run production function, diminishing marginal returns, the link between productivity and costs, the relationships that exist among cost curves, long-run costs, economies and diseconomies of scale, profit maximization, and the behavior of firms in perfectly competitive markets in the short run and the long run.

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AP Microeconomics: 3.3-3.4 Long-Run Production Costs and Types of Profit