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LONG-RUN COST OFPRODUCTION

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LONG-RUN COST

In the longrun, all factor of !ro"uct#on are $ar#a%le, an" hencare $ar#a%le&

Long-run 'TC cur$e for the enter!r#e # (a"e u! of eg(ent hort-run 'TC cur$e

The long-run 'TC cur$e ho) the lo)et a$erage total cot at

out!ut le$el can %e !ro"uce" after the +r( ha ha" t#(e to (aa!!ro!r#ate a"ut(ent #n #t !lant #.e&

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The long-rutotal-cot cu

u! of eg(hort-run c/'TC-0, 'TCthe $ar#oufro( )h#c(#ght cho!o#nt on !lann#ng cthe lo)etatta#na%le out!ut )hehaha" t#(e t"e#re" cha!lant #.e&

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If the !o#%le $er* largrun a$eracur$e a!(ooth Econo(#e

follo)e" "#econo(caue theU-ha!e"

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ECONO4IES OF

Econo(#e of cara!#"l* o%ta#ne" r#e, an" "#econoare notencountere" unt#l a

large cale of outach#e$e"& Thu, lontotal cot # contarange of out!ut&

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Economies of scale, or econo(#e of (a !ro"uct#on, e3!la"o)nlo!#ng !art of the long-run 'TC cur$e&

' !lant #.e #ncreae, a nu(%er of factors)#ll for a t#(e leaaverage costs of production5

Labor Specialization- greater efciency and eliminates los

Managerial Specialization- greater productivity and efcie Efcient Capital- eective use o the equipment demands

volume o production

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DISECONO4IES OF

Econo(#e of cale 6u#cl*, follo)e" #("#econo(#e of ca'TC thu occur at alo) out!ut&

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The (a#n factor cau#ng diseconomies of scale is the "#7ce7c#entl* controll#ng an" coor"#nat#ng a +r(8 o!erat#on a #tlarge-cale !ro"ucer&

S#ngle e* e3ecut#$e cannot ae(%le, "#get, an" un"ertan"#nfor(at#on eent#al to "ec##on (a#ng on a large cale, thu"elegat#on of author#t*&

e3!an#on of the (anage(ent h#erarch* lea" to !ro%le( ofco((un#cat#on an" coo!erat#on, %ureaucrat#c re" ta!e, an" th!o#%#l#t* that "ec##on )#ll not %e coor"#nate"&

9orer (a* feel al#enate" fro( the#r e(!lo*er an" care l#ttle)or#ng e7c#entl*&

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4INI4U4 EFFICIENT SC'LINDUSTR: STRU

Minimum ecient scale (MES): the lo)et le$el of out!ut a+r( can (#n#(#.e long-run a$erage cot&

4ES4ES

The ha!e of the longtotal-cot cur$e # "e

technolog* an" the e"#econo(#eof cale that reult& Tlong-run 'TC cur$e, ##gn#+cant #n "eter(#an #n"utr* # !o!ulalarge nu(%er of (a"o(#nate" %* a fe) ll#e o(e)here #n %e