Long+Run

The long run is any period of time that fixed costs do not apply. The long run is a period of time in which anything about your business can be changed. The long run cost curve is a compostite of the bottom of all possible short run cost curves. During the long run, companies can expierence one of three things, economies of scale, diseconomies of scale or constant returns to scale. Economies of scale are when the cost per unit goes down as the unit output is going up. Diseconomies of scale are when the cost per unit goes up when the unit output is going up. Constant returns to scale are when the cost per unit stays the same as the unit output rises.

In the long run, firms strive to be at constant return to scale, however many are not there. Very small companies tend to not be specialized enough to get away from economies of scale. Very large companies tend to have so much bureaucracy that they are inefficient and too large for their own good. Companies that are actually expierencing diseconomies of scale are GM and Kozmo. Companies like Honda and Domino's pizza are at constant returns to scale right now and very efficient with resources.

The graph of the long run



media type="youtube" key="00gOBhJ4S5Q" height="344" width="425" Make sure to listen for a while because it takes them a while to get to the long run.

Links http://tutor2u.net/economics/revision-notes/a2-micro-shortrun-longrun-production.html http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/LongRun-Costs.topicArticleId-9789,articleId-9760.html http://en.wikipedia.org/wiki/Long_run

Quiz: What is this firm expierencing? The firm doubled its production, but the cost per unit of output stayed the same. A) Economies of Scale B) Diseconomies of Scale C) Constant returns to scale Answer: C For answer, highlight from quiz to this area.