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

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Module. Micro: Econ:. 20. 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 the short run versus the long run. How a firm can enjoy economies of scale. Returns to Scale. - PowerPoint PPT Presentation

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Page 1: Long Run Costs

KRUGMAN'SMICROECONOMICS for AP*

Long Run Costs

Margaret Ray and David Anderson

Micro:

Econ:

20

56

Module

Page 2: Long Run Costs

What you will learnin this Module:

• Why a firm’s costs differ in the short run versus the long run.

• How a firm can enjoy economies of scale.

Page 3: Long Run Costs

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.

Page 4: Long Run Costs

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

Page 5: Long Run Costs

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.

Page 6: Long Run Costs

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!


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