Module Micro 20 Econ 56 Long Run Costs

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Module Micro: 20 Econ: 56 Long Run Costs KRUGMAN'S MICROECONOMICS for AP* Margaret Ray

Module Micro: 20 Econ: 56 Long Run Costs KRUGMAN'S MICROECONOMICS for AP* Margaret Ray and David Anderson

What you will learn in this Module: • Why a firm’s costs differ in

What you will learn in this Module: • Why a firm’s costs differ in the short run versus the long run. • How a firm can enjoy economies of scale.

Returns to Scale The long-run average cost curve for a firm is “U- shaped”

Returns to Scale The long-run average cost curve for a firm is “U- shaped” like the short-run average cost curves – but for a different reason.

Short-run versus Long-run Costs • The short run: at least one input is fixed

Short-run versus Long-run Costs • The short run: at least one input is fixed (can not be changed) • The long-run: all inputs are variable

Economies and Diseconomies of Scale • Economies of Scale: the LRATC is falling as

Economies and Diseconomies of Scale • Economies of Scale: the LRATC is falling as the firm expands. • Diseconomies of Scale: the LRATC is rising as the firm expands.

Sunk Costs • A sunk cost is a cost that has been incurred in

Sunk Costs • A sunk cost is a cost that has been incurred in the past and cannot be recovered. • Sunk costs don’t matter in decision-making!

Figure 56. 1 Choosing the Level of Fixed Cost for Selena’s Gourmet Salsas Ray

Figure 56. 1 Choosing the Level of Fixed Cost for Selena’s Gourmet Salsas Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Figure 56. 2 Short-Run and Long-Run Average Total Cost Curves Ray and Anderson: Krugman’s

Figure 56. 2 Short-Run and Long-Run Average Total Cost Curves Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Table 56. 1 Concepts and Measures of Cost Ray and Anderson: Krugman’s Economics for

Table 56. 1 Concepts and Measures of Cost Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

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