AP Microeconomics AMSCO Guided Notes
3.3: Long-Run Production Costs
AP Microeconomics Guided Notes
AMSCO 3.3 - Long-Run Production Costs
Essential Questions
- How do firms consider long-run production costs?
I. Long-Run Inputs
1. How do economists define the long run and what determines its length for a firm?
2. Why do firms have more flexibility in adjusting inputs in the long run compared to the short run?
A. Variability of Inputs and Costs
1. What types of costs become variable in the long run and what options does this give firms?
2. How might a firm respond to rising wages by adjusting its input combination?
II. Scale of Production
A. Increasing Returns to Scale
1. What is increasing returns to scale and under what conditions might it occur?
B. Decreasing Returns to Scale
1. How does decreasing returns to scale differ from increasing returns to scale?
C. Constant Returns to Scale
1. What is constant returns to scale and how does it compare to the other types of returns?
III. Long-Run Costs
1. What is long-run average total cost and what are the three ways it can vary?
A. Economies of Scale
1. What are economies of scale and why might larger factories achieve lower average costs than smaller ones?
2. How do warehouse stores effectively use economies of scale in their operations?
B. Diseconomies of Scale
1. What are diseconomies of scale and what causes them as firms expand production?
IV. Minimum Efficient Scale
1. What is minimum efficient scale and what does it represent on a firm's long-run average total cost curve?
2. How does minimum efficient scale affect market structure and the number of firms in an industry?
3. Why do pizza restaurants reach minimum efficient scale more quickly than auto manufacturers?
Key Terms
long run
production technologies
scale of production
increasing returns to scale
decreasing returns to scale
constant returns to scale
efficient scale
long-run average total cost
economies of scale
scale
diseconomies of scale
coordination issues
minimum efficient scale
productive efficiency
market concentration