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  • Long-Run and Short-Run Average Cost Curves. Note That

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    The long-run and short-run average cost curves must be tangent, implying that long-run and short-run marginal costs are equal. Another way to view the relationship is that the long-run cost curve is the lower envelope of the family of short-run average cost curves, as it represents the minimum cost of producing a given output level by choosing the optimal fixed factor amount. With many possible fixed factor levels, the long-run curve becomes a smooth scalloped shape formed from the envelope of the short-run curves.

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    Long-run and short-run average cost curves. Note that the long-run

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    The long-run and short-run average cost curves must be tangent, implying that long-run and short-run marginal costs are equal. Another way to view the relationship is that the long-run cost curve is the lower envelope of the family of short-run average cost curves, as it represents the minimum cost of producing a given output level by choosing the optimal fixed factor amount. With many possible fixed factor levels, the long-run curve becomes a smooth scalloped shape formed from the envelope of the short-run curves.

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    Long-Run and Short-Run Average Cost Curves. Note That

    Uploaded by

    banks
    The long-run and short-run average cost curves must be tangent, implying that long-run and short-run marginal costs are equal. Another way to view the relationship is that the long-run cost curve is the lower envelope of the family of short-run average cost curves, as it represents the minimum cost of producing a given output level by choosing the optimal fixed factor amount. With many possible fixed factor levels, the long-run curve becomes a smooth scalloped shape formed from the envelope of the short-run curves.

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    © All Rights Reserved
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    Long-run and short-run average cost curves.

    Note that
    the long-run and the short-run average cost curves must be tangent
    which implies that the long-run and short-run marginal
    costs must be equal.
    Another way to see the relationship between the long-run and the shortrun
    average cost curves is to start with the family of short-run average cost
    curves. Suppose, for example, that we have a fixed factor that can be used
    only at three discrete levels: Z I , Z ~2, 3 . We depict this family of curves in
    Figure 5.3. What would be the long-run cost curve? It is simply the lower
    envelope of these short-run curves since the optimal choice of z to produce
    output y will simply be the choice that has the minimum cost of producing
    y. This envelope operation generates a scalloped-shaped long-run average
    cost curve. If there are many possible values of the fixed factor, these
    scallops become a smooth curve.

    5.4

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