ECON 1B03 Lecture Notes - Lecture 7: Factor X, Root Mean Square, Variable Cost

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Cost in the lr because many costs are xed in the short run but variable in the long run, a rm"s long-run cost curves di er from its short-run cost curves. Jerry"s factory size is xed in the sr ( xed input) this is more common when q is low to begin with decreasing returns to scale are due to coordination problems in large organizations. Ex. management becomes stretched and can"t control costs this more common when q is high. Another way to think about economies of scale: Irs: if you increase inputs by some factor x, you get more than an x increase in output. Crs: if you increase inputs by some factor x, you get exactly an x increase in output. Consider 3 di erent sizes of factories jerry could build in the lr small factory, medium-sized or large factory.