long run cost curve
TRANSCRIPT
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PRESENTED BY-
QUADIR ALI
FMM 1ST SEM.
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IMPORTANCE OF TIME ELEMENT IN
THE THEORY OF COST -
It plays an important role in determination of cost and
production of a commodity depending on the time
period.
1.Very short period: This period is so short that
production cannot be increase this it becomeimmaterial whether cost of production is being
recovered or not at the prevailing price.
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2.Short period: It is that time period during which
production can be increased only by increasing thevariable factor. As the producer can control only the
variable cost, producer must cover at least the
variable cost during the short period.
3.Long period: It is that period during which
production can be increased by increasing the fixedas well as variable factor of production.
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COST CURVE -
A cost curve is a graph of the costs of production as a
function of total quantity produced.
In a free market economy, productively efficient
firms use these curves to find the optimal point of
production(minimising cost), and profit maximizing
firms can use them to decide output quantities to
achieve those aims.
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LONG RUN -
In the long run, classical economics assumes that allresources can be shifted from one form of production
into another.
This assumption is essential for the conclusion that in
the long run competitive economies allocateresources in an efficient manner.
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TYPES OF LONG RUN COST CURVE
1. LONG RUN TOTAL COST CURVE.
2. LONG RUN AVERAGE COST CURVE.
3. LONG RUN MARGINAL COST CURVE.
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LONG RUN TOTAL COST CURVE
The long run total cost curve, where cost of
production is the least possible cost of producing any
given level of output when all inputs are variable.
All factors tend to become variable in the long run
hence there exists no fixed cost thereforeLRTC=LRVC.
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LONG RUN AVERAGE COST CURVE
The long-run average cost curve depicts the cost per
unit of output in the long runthat is, when all
productive inputs' usage levels can be varied.
It refers to the minimum possible per unit cost of
producing different quantities of output of a good inthe long period.
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Why is long run average cost curve Ushaped?
It is U shaped is initially LRAC falls due to
increasing returns to scale (Economic of scale) than it
is minimum and constant due to constant return to
scale (Economic of scale are counter balanced by thiseconomic of scale) finally LRAC rise due to
diminishing return to scale (Diseconomic of scale).
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LONG RUN MARGINAL COST CURVE
It refers to change in total cost due to production ofone more or one less units of output as the result of
change in all factors.
When long-run marginal costs are below long-runaverage costs, long-run average costs are falling (as
to additional units of output).
When long-runmarginal costs are above long run average costs,average costs are rising.
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THANK YOU