long run cost curve

8/3/2019 Long Run Cost Curve

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PRESENTED BY-

QUADIR ALI

FMM 1ST SEM.


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IMPORTANCE OF TIME ELEMENT IN

THE THEORY OF COST -

It plays an important role in determination of cost and

production of a commodity depending on the time

period.

1.Very short period: This period is so short that

production cannot be increase this it becomeimmaterial whether cost of production is being

recovered or not at the prevailing price.


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2.Short period: It is that time period during which

production can be increased only by increasing thevariable factor. As the producer can control only the

variable cost, producer must cover at least the

variable cost during the short period.

3.Long period: It is that period during which

production can be increased by increasing the fixedas well as variable factor of production.


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COST CURVE -

A cost curve is a graph of the costs of production as a

function of total quantity produced.

In a free market economy, productively efficient

firms use these curves to find the optimal point of

production(minimising cost), and profit maximizing

firms can use them to decide output quantities to

achieve those aims.


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LONG RUN -

In the long run, classical economics assumes that allresources can be shifted from one form of production

into another.

This assumption is essential for the conclusion that in

the long run competitive economies allocateresources in an efficient manner.


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TYPES OF LONG RUN COST CURVE

1. LONG RUN TOTAL COST CURVE.

2. LONG RUN AVERAGE COST CURVE.

3. LONG RUN MARGINAL COST CURVE.


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LONG RUN TOTAL COST CURVE

The long run total cost curve, where cost of

production is the least possible cost of producing any

given level of output when all inputs are variable.

All factors tend to become variable in the long run

hence there exists no fixed cost thereforeLRTC=LRVC.


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LONG RUN AVERAGE COST CURVE

The long-run average cost curve depicts the cost per

unit of output in the long runthat is, when all

productive inputs' usage levels can be varied.

It refers to the minimum possible per unit cost of

producing different quantities of output of a good inthe long period.


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Why is long run average cost curve Ushaped?

It is U shaped is initially LRAC falls due to

increasing returns to scale (Economic of scale) than it

is minimum and constant due to constant return to

scale (Economic of scale are counter balanced by thiseconomic of scale) finally LRAC rise due to

diminishing return to scale (Diseconomic of scale).


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LONG RUN MARGINAL COST CURVE

It refers to change in total cost due to production ofone more or one less units of output as the result of

change in all factors.

When long-run marginal costs are below long-runaverage costs, long-run average costs are falling (as

to additional units of output).

When long-runmarginal costs are above long run average costs,average costs are rising.


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THANK YOU

long run cost curve

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