Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves,...

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Long Run Average Total Cost Curve

Transcript of Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves,...

Page 1: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Long Run Average Total Cost Curve

Page 2: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

The Long Run Average Total Cost Curve

• When studying cost curves, remember that we have been in the short run.

• In the short run, the average total cost curve has been u-shaped.

Page 3: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

What is the shape of the Long Run Average Total Cost Curve?

Page 4: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Long Run Average Total Cost Curve

• The long run average total cost curve is made up of a series of short run ATC’S. Each ATC is for a different time period, and represents the average total costs at that point in time, for those outputs.

Page 5: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Long Run Average Total Cost Curve

• Studies have shown that the minimum point of the short run ATC’S first falls, and then rises.

Page 6: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Graphing The Long Run Average Total Cost Curve

• When we graph the long run ATC, we graph the minimum point of all of the various short run ATC’S.

Page 7: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Graphing The Long Run Average Total Cost Curve

• The long run average total cost curve turns out to be u-shaped.

Page 8: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Shape Of The Long Run Average Total Cost Curve

• Why is the long run average total cost curve initially downwards sloping?

• Economies of Scale explain the falling costs.

Page 9: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Causes of Economies of Scale

Page 10: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Causes of Economies of Scale

1 Labor Specialization

2 Management Specialization

3 Efficient Use of Capital

4 Efficient Use of By-Products

Page 11: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Labor Specialization

A: With more workers, firms can subdivide the work. Workers can become more efficient and faster at their job.

Page 12: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Management Specialization

B: With more managers, the firm can subdivide the work of management, into specialized jobs. Each job can then be done more efficiently.

Page 13: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Many Technologies work most efficiently (cheaply) in larger

production batches.

Page 14: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Efficient Capital Use

C: Many Technologies work most efficiently (cheaply) in larger production batches.

Page 15: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Efficient Use of By-Products

D: Firms cut costs by using all of the raw materials that they purchase by find new products.

Page 16: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Causes of Diseconomies of Scale

Page 17: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Diseconomies of Scale

• Why does the long run average total cost curve becomes upwards sloping?

• Diseconomies of Scale explains the rising costs.

Page 18: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Causes of Diseconomies of Scale

1 Worker Alienation

2 Communication Problems

3 Coordination and Control Problems

Page 19: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Worker Alienation

A: - Large numbers of unhappy workers require ever larger numbers of supervisors, who do not directly produce, but must be paid.

Page 20: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Communication Problems

B:- In all firms, information is lost or distorted as it is passed up and down in large bureaucracies.

Page 21: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Coordination and Control

C: - Control and coordination is hard to maintain in large bureaucracies.

Page 22: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Diseconomies of Scale

For all of these reasons, companies that become too large experience diseconomies of scale.

Page 23: Long Run Average Total Cost Curve. The Long Run Average Total Cost Curve When studying cost curves, remember that we have been in the short run. In the.

Long Run Average Total Cost Curves

History tells us that companies become more efficient as they become larger, but that if they get too large, they become inefficient.

What will happen to all of these companies that have recently merged?.