COST FUNCTION IN LONG- RUN
 Cost function in Long- Run may be defined
as the mathematical relationship btw cost
of a prod...
LONG- RUN COST
 In long run ,all inputs to a firms production may be

changed.
 There are no fixed inputs, fixed cost.
...
LONG- RUN AVERAGE COST
It is aperios of time during which the firm can vary all

of its input
The firm moves from one pl...
LONG-RUN AVERAGE COST CURVE
LONG-RUN AVERAGE COST CURVE
Long- run average cost curve depicts the functional

relationship between output & the long r...
ECONOMIES OF SCALE
A Firms LRAC declines as output increases, the firm is

said to be experiencing economies of scale.
I...
...........
Real economies of scale

Pecuniary economies of
scale

Are those associated with a reduction in
physical quant...
Economics of Scale
 Scale means size.
Economies of scale: the decrease in per unit
costs as the quantity of production i...
Economies of Scale
In the longer run all inputs are variable, so only

economies of scale can influence the shape of the
...
Diseconomies of Scale
Diseconomies of scale refer to decreases in

productivity which occur when there are equal
increase...
Constant Returns to Scale
 Constant returns to scale is where long-run average

total costs do not change as output incre...
Costs per unit

Economies and Diseconomies of
Scale
$64
62
60
58
56
54
52
50
48

Economies
of Scale

1 1 12

13

Constant
...
THANK YOU
Long run Managerial Economics
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Long run Managerial Economics

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Long run Managerial Economics

  1. 1. 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]
  2. 2. 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.
  3. 3. 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
  4. 4. LONG-RUN AVERAGE COST CURVE
  5. 5. 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.
  6. 6. 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
  7. 7. ........... 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
  8. 8. 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
  9. 9. 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.
  10. 10. 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).
  11. 11. Constant Returns to Scale  Constant returns to scale is where long-run average total costs do not change as output increases.
  12. 12. Costs per unit Economies and Diseconomies of Scale $64 62 60 58 56 54 52 50 48 Economies of Scale 1 1 12 13 Constant retuArns to Scale 14 15 Diseconomies of Scale Average total cost 16 17 18 19 20 Quantity
  13. 13. THANK YOU

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