The document discusses cost functions and curves in the long run. It defines long run costs as those that can change as the firm varies all inputs over time. The long run average cost curve depicts the relationship between output and long run average cost of production as the firm takes advantage of economies of scale by increasing production. Economies of scale refer to decreasing long run average costs from increasing production, while diseconomies of scale refer to increasing costs from producing at too large a scale.

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. 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

14. THANK YOU