1. Long-Run Production Costs Everything is Variable

2. Resource Adjustments In the Long-Run, a firm can undergo any adjustments to its resource inputs. Unlike the Short-Run, there are no fixed resources. It can alter its plant capacity, change industries, and ultimately adapt to differing market conditions.

3. Firm Size and Costs Since we can change the size of our plant in the Long-Run, we have options A, B, or C. D is the Long-Run Average Total Cost Curve. It is made up of a series of Short-Run Curves.

4. The Long-Run Cost Curve At the minimum of curve A and curve C, the firm should shift production to a new plant size. A different plant size is more efficient for different output quantities. Why?

5. Figure 8-8 Quiz Figure 8-8 on page 204 illustrates an excellent example of a firm’s Long-Run Average Total Cost Curve. It consists of an unlimited number of plant sizes, which might be appropriate depending on the firms desired level of output.

6. Economies of Scale Economies of Scale explain the down sloping part of the Long-Run ATC Curve. As the firm expands the size of its plants and its total output in the long-run, it begins to experience the economies of mass production. You begin to use capital more efficiently, specialize, share managerial resources, etc.

7. Factors of Economies of Scale Labour Specialization: Working on the same thing can make people more proficient. Managerial Specialization: Managers and supervisors can be utilized more efficiently. Efficient Capital: If a robot can produce 200,000 cars per year, 0-199,999 units is not as efficient. Other Factors: Research & development costs, advertising, financing, et. Cetera can be spread out.

8. Diseconomies of Scale Increases in the ATC of producing a product as the firm expands in the long-run and becomes too large. Main factor is difficulty controlling and coordinating a firm’s operations. Communication problems, middle management, bureaucracy, apathetic employees, slow to change. Think of problems you might see at a really large chain store.

9. Constant Returns to Scale This is when long-run average costs are not changing. It is the output range between economies of scale (declining ATC) and diseconomies of scale (increasing ATC).

10. Minimum Efficient Scale The lowest level of output at which a firm can minimize long-run average costs. Capital intensive industries realize minimum efficient scales at very high levels of output. A Natural Monopoly exists in an industry when the economies of scale are so great that one producer would be the most efficient.

11. Economies and Diseconomies of Scale Utilize today’s reading and answer the associated questions. To be handed in tomorrow (Assignment # 10) The information will be on Wednesday’s Ch. 7 & 8 Test.