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In economics, a cost function represents the minimum cost of producing a quantity of some good. The long-run cost curve is a cost function that models this minimum cost over time, meaning inputs are not fixed. Using the long-run cost curve, firms can scale their means of production to reduce the costs of producing the good. [1]
The long-run marginal cost curve is shaped by returns to scale, a long-run concept, rather than the law of diminishing marginal returns, which is a short-run concept. The long-run marginal cost curve tends to be flatter than its short-run counterpart due to increased input flexibility. The long-run marginal cost curve intersects the long-run ...
The marginal cost can be either short-run or long-run marginal cost, depending on what costs vary with output, since in the long run even building size is chosen to fit the desired output. If the cost function C {\displaystyle C} is continuous and differentiable , the marginal cost M C {\displaystyle MC} is the first derivative of the cost ...
The Long Run Average Cost (LRAC) curve plots the average cost of producing the lowest cost method. The Long Run Marginal Cost (LRMC) is the change in total cost attributable to a change in the output of one unit after the plant size has been adjusted to produce that rate of output at minimum LRAC.
The long-run is associated with the long-run average cost (LRAC) curve in microeconomic models along which a firm would minimize its average cost (cost per unit) for each respective long-run quantity of output. Long-run marginal cost (LRMC) is the added cost of providing an additional unit of service or product from changing capacity level to ...
Each of these factors reduces the long run average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve down and to the right. Economies of scale is a concept that may explain patterns in international trade or in the number of firms in a given market.
Marginal cost and marginal revenue, depending on whether the calculus approach is taken or not, are defined as either the change in cost or revenue as each additional unit is produced or the derivative of cost or revenue with respect to the quantity of output. For instance, taking the first definition, if it costs a firm $400 to produce 5 units ...
In the long run a firm operates where marginal revenue equals long-run marginal costs, but only if it decides to remain in the industry. [30] Thus a perfectly competitive firm's long-run supply curve is the long-run marginal cost curve above the minimum point of the long-run average cost curve. [31]