Long run Managerial Economics

1. LONG-RUN COST

2. COST FUNCTION IN LONG- RUN Cost function in Long- Run may be defined as the mathematical relationship btw cost of a product and the various determinants of cost. C= F [Q, T ,Pf, K]

3. LONG- RUN COST In long run ,all inputs to a firms production may be changed. There are no fixed inputs, fixed cost. The cost that are incurred on the fixed factors like plant, building, machinery, etc., are known as Long- run cost, . In the long run , however even the fixed costs become variable costs as the size of the firm or scale of production increases.

4. LONG- RUN AVERAGE COST It is aperios of time during which the firm can vary all of its input The firm moves from one plant to another in long run Long run cost of production is the least posible cost of producing any given level of output when all individual factors are variable

5. LONG-RUN AVERAGE COST CURVE

6. LONG-RUN AVERAGE COST CURVE Long- run average cost curve depicts the functional relationship between output & the long run cost of production. It envelops the set of U- shaped short run average cost curves corresponding to different plant sizes. LRAC Curve is reflecting economic of scale when negatively slop & diseconomies of scale when positivey sloped.

7. ECONOMIES OF SCALE A Firms LRAC declines as output increases, the firm is said to be experiencing economies of scale. It can be classified in to two: 1.Real economies of scale 2. Pecunaic economies of scale

8. ........... Real economies of scale Pecuniary economies of scale Are those associated with a reduction in physical quantit y of inputs , raw materials, various types of labour and various types of capital Are realised from paying lower prices for the factors used in the production and distribution of the product , due to bulk buying by thr firmas its size increases

9. Economics of Scale Scale means size. Economies of scale: the decrease in per unit costs as the quantity of production increases and all resources are variable Diseconomies of scale: the increase in per unit costs as the quantity of production increases and all resources are variable Constant returns to scale: unit costs remain constant as the quantity of production is increased and all resources are variable

10. Economies of Scale In the longer run all inputs are variable, so only economies of scale can influence the shape of the long-run cost curve. The minimum efficient level of production is reached once the size of the market expands to a size large enough so that firms can take advantage of all economies of scale.

11. Diseconomies of Scale Diseconomies of scale refer to decreases in productivity which occur when there are equal increases of all inputs (no input is fixed).

12. Constant Returns to Scale Constant returns to scale is where long-run average total costs do not change as output increases.

13. Average total cost Costs per unit $64 62 60 58 56 54 52 50 48 1 1 12 13 14 15 16 17 18 19 20 Quantity Economies and Diseconomies of Scale Economies of Scale Diseconomies of Scale Constant retuArns to Scale

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