Long-Run Production Costs - AP Microeconomics

Diseconomies of scale (decreasing returns to scale). Cost rises more than proportionally to output.

Fewer firms; greater likelihood of oligopoly or monopoly. High MES creates barriers to entry for small firms.

Lowest output where LRATC reaches its minimum. Smallest scale at which unit costs are minimized.

The flat (horizontal) portion of LRATC. Cost per unit remains unchanged with scale here.

The upward-sloping portion of LRATC. Cost per unit increases with scale in this region.

The downward-sloping portion of LRATC. Cost per unit decreases with scale in this region.

LRATC is constant as output increases. Proportional input increases yield proportional output.

All inputs are variable; there are no fixed costs. Firms can adjust all factors of production over time.

LRATC rises as output increases. Coordination problems increase per-unit costs at large scale.

Minimum $ATC$ at each output when all inputs are variable. Envelope of all possible short-run cost curves.

LRATC falls as output increases. Larger scale production reduces per-unit costs.

LRATC is the lower envelope of short-run $ATC$ curves. Each point touches one short-run curve at its minimum.

Change in long-run total cost from producing one more unit. Slope of LRTC curve when all inputs adjust optimally.

Diseconomies of scale. LRATC rises from $6$ to $7$, showing scale disadvantages.

Constant returns to scale. LRATC stays at $8$, showing no scale advantages.

Minimum total cost of producing $Q$ when all inputs are variable. Optimal combination of inputs for each output level.

Many firms; greater likelihood of monopolistic competition. Low MES allows many efficient firms to coexist.

The firm chooses the plant that minimizes $ATC$ for its output. Firms select optimal scale for their production level.

Transition from economies of scale to diseconomies of scale. Where increasing returns end and decreasing returns begin.

Economies of scale. LRATC falls from $12$ to $9$, showing cost advantages.

Not applicable; there are no fixed costs in the long run. All costs are variable when inputs can be adjusted.

All inputs are variable; there are no fixed costs. Firms can adjust all factors of production over time.

LRTC is the minimum cost to produce each $q$ with all inputs variable. Firms choose optimal input combinations to minimize cost at each output level.

$LRATC(q)=\frac{LRTC(q)}{q}$. Divides total cost by quantity to find per-unit cost.

$LRMC(q)=\frac{\Delta LRTC}{\Delta q}$. Measures the change in total cost from producing one more unit.

The lowest attainable $ATC$ at each output when the firm can vary plant size. Represents optimal plant size choices for each output level.

At each $q$, $LRATC$ is tangent to the lowest feasible short-run $ATC$. Firm chooses the plant size with lowest $ATC$ for each output.

As $q$ rises, $LRATC$ rises. Larger scale production increases per-unit costs.

As $q$ rises, $LRATC$ is constant. Per-unit costs remain unchanged as production scales.