Flashcards in Production and Costs in the Long Run 7.4-2&3 ~ Benjamin Rainwater Deck (12):
1
If a firm’s output increases by the same percentage as the increase in its inputs, it has
constant returns to scale.
2
If a firm’s output increases by a greater percentage than the percentage increase in its
inputs, it has
increasing returns to scale
3
If a firm’s output increases by less than the percentage increase in its inputs, it has
decreasing returns to scale.
4
In the short run, a firm can increase output
only by increasing
labor
5
In the long run, a
firm can change the techniques of its
operation by increasing
labor, tools,
equipment, and/or its factory.
6
The long-run average cost (LRAC) curve is a
U-shaped curve that shows all possible
output levels plotted against the average cost for each level.
7
The LRAC is an “envelope” that contains all possible short-run...
average total cost (ATC)
curves for the firm
8
The point of efficient scale is
the point on the long-run average cost (LRAC) curve where
average cost for a firm is at the minimum
9
Each output point on the LRAC curve
represents a particular combination what?
capital
and labor.
10
The short-run ATC curves represent different
scales of plant that cannot be changed in the
short run. They are all above the LRAC
because
firms have less flexibility in the short
run and costs are higher.
11
Each tangency point
is
the cost-minimizing point for that level of
output.
12