This lesson explains what economists mean by the long run and how firms choose among different ways of producing the same output. The distinction matters because firms can adjust all inputs in the long run and select the combination that costs them least.
The long run is the period in which all costs are variable. A firm is no longer committed to a fixed amount of any input: it can change its workforce, buy or sell machinery, expand or close facilities, or choose a different production process.
All flashcards
Long run
A planning period in which a firm can vary all its inputs; its duration depends on the firm's circumstances.
Production technology
An available method for combining inputs to produce output.
Economies of scale
A pattern in which average cost falls as output increases.
Long-run average cost (LRAC) curve
The lowest average cost attainable at each output when a firm can choose its scale and vary all inputs.
Agglomeration economies
Benefits arising when people and economic activities are located near one another.
Quiz questions
What does a firm's long-run average cost curve show?Answer: The lowest average cost attainable at each output when all inputs can vary.
How do long-run economies of scale differ from short-run diminishing marginal returns?Answer: Economies of scale concern changing all inputs; diminishing returns concern increasing an input while others are fixed.
If market demand is below the efficient output of one plant, what cost-based market structure may be viable?Answer: A monopoly may serve the market at lower average cost than smaller rivals.
What can a broad, flat minimum on the long-run average cost curve allow?Answer: Firms of different sizes can produce at roughly similar average costs.
How can information and communication technology affect firm size?Answer: It can help small firms reach distant customers and help large firms coordinate operations.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.