Long-run Production Costs
Definition
Long-run production costs refer to the expenses incurred by a firm for producing goods or services when all factors of production are variable and can be adjusted. In this time frame, there are no fixed inputs, allowing firms to optimize their production process and minimize costs.
Analogy
Imagine you're starting your own clothing brand from scratch. The long-run production costs would include things like purchasing sewing machines, hiring employees, renting a workspace, and buying fabric. You have flexibility in adjusting these inputs based on your desired level of production.
Related terms
Economies of Scope: Economies of scope occur when it is cheaper for a firm to produce multiple products together rather than separately. This allows firms to reduce their average costs by sharing resources across different product lines.
Sunk Costs: Sunk costs are expenses that have already been incurred and cannot be recovered regardless of future decisions made by the firm. In long-run production planning, sunk costs should not influence decision-making.
Isoquant Curve: An isoquant curve represents all possible combinations of inputs that can produce a specific level of output. It helps firms visualize different input combinations they can use to achieve their production goals.
"Long-run Production Costs" appears in:
Resources
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.