ECON 201 Lecture Notes - Lecture 8: Production Function, Marginal Cost, Average Variable Cost
17 Apr 2016
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Cost curves definition: the long run total cost function relates minimized total cost to output, q, and to the factor prices (w and r). Average & marginal cost curves definition: the long run average cost function is the long run total cost function divided by output, q. That is, the lrac function tells us the firm"s cost per unit of output definition: the long run marginal cost function measures the rate of change of total cost as output varies, holding constant input prices. If lrac decreases as output rises, all else equal, the cost function exhibits economies of scale. Similarly, if lrac increases as output rises, all else equal, the cost function exhibits diseconomies of scale. Definition: the smallest quantity at which lrac curve attains its minimum point is called the minimum efficient scale. When the production function exhibits increasing returns to scale, the long run average cost function exhibits economies of scale so that.
