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Jun 12, 2023 · What Is the Long Run? The long run is a situation in economics wherein all factors of production and costs are variable. The long run allows firms to operate and adjust all...
Sep 4, 2023 · Long-run costs: In the long run, all costs are variable because a firm can adjust its production capacity and all inputs can be modified. This means that both variable costs and fixed costs can change in response to changes in production levels or the scale of operations.
In the short run, we assume capital is fixed. In the long run, the amount of capital is variable. We may mention short term factors affecting exchange rates or short term factors affecting the economy. For example, an increase in the money supply may cause a short-term increase in real output.
- Choice of Production Technology. A firm can perform many tasks with a range of combinations of labor and physical capital. For example, a firm can have human beings answering phones and taking messages, or it can invest in an automated voicemail system.
- Economies of Scale. Once a firm has determined the least costly production technology, it can consider the optimal scale of production, or quantity of output to produce.
- Shapes of Long-Run Average Cost Curves. While in the short run firms are limited to operating on a single average cost curve (corresponding to the level of fixed costs they have chosen), in the long run when all costs are variable, they can choose to operate on any average cost curve.
- The Size and Number of Firms in an Industry. The shape of the long-run average cost curve has implications for how many firms will compete in an industry, and whether the firms in an industry have many different sizes, or tend to be the same size.
Average variable cost first falls, reaches a minimum point (at output level Q 2) and subsequently increases. The next important concept is one of average total cost (ATC). It is calculated by dividing total cost by output, It is, therefore, the sum of average fixed cost and average variable cost.
In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium.
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Dec 11, 2018 · Long run: Quantity of labor, the quantity of capital, and production processes are all variable (i.e. changeable). The long run is sometimes defined as the time horizon over which there are no sunk fixed costs. In general, fixed costs are those that don't change as production quantity changes.
