Structure of Costs in the Long Run
Read this chapter. As you read and begin to understand what economies of scale are, create your own definition and see how it is similar or different from the text. In addition, focus on the diseconomies of scale to see what happens when a factory grows too quickly and becomes increasingly difficult to manage.
The Structure of Costs in the Long Run
Glossary
- constant returns to scale
- expanding all inputs proportionately does not change the average cost of production
- diseconomies of scale
- the long-run average cost of producing each individual unit increases as total output increases
- long-run average cost (LRAC) curve
- shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology
- production technologies
- alternative methods of combining inputs to produce output
- short-run average cost (SRAC) curve
- the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs